• Taxes will be among the largest expenses for many throughout their entire lives. We will revisit this topic regularly but with many of us receiving our tax docs this month, we may wonder what options we have in the new tax year to pay less for last year’s taxes?

• It’s not too late!

What to do this week

A Health Savings Account contribution can help reduce your taxable income for last year. If you were covered by a high deductible health plan at work in 2023, determine if you can add the maximum before 4/15/24.

• If you’re employed, look at your W-2

• Box 12 (highlighted below) will be coded W and the amount shown is the total contributed by you and your employer. Both count toward the contribution limit. It’s Box 5 on a 1099

• Determine if you can contribute more to save on taxes with cash you have on hand.

  

• 2023 the maximum contributions were $3,850 for individuals and $7,750 for families.

• If you are 55 or older, you can add up to $1,000 more as a catch-up contribution.

• If you have room left to contribute, you can add that before 4/15/2024.

Why Save In An HSA?

HSA accounts are great for wealth building because they are triple tax-advantaged.

• There are rules that apply.

• HSAs are powerful because there are no use-it-or-lose-it provision (employer Flexible Spending Accounts are the use-it-or-lose-it accounts). Any funds still in the plan at the end of the year can be rolled over indefinitely.

• Paying for current health care expenses from an employer Flexible Spending Account or your cash reserves allows that HSA money to compound over time.

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The Opportunity

An HSA is powerful for high earners in a high tax bracket who have sufficient cash reserves or their company FSA to cover current health expenses.

The below case is simply showing what is possible with an HSA. While all three contributed the same dollar amount to their plan, they had 3 very different tax saving experiences.

• Harry received the most tax savings

• Sam withdrew $5,000 of every year’s $8,300 maximum contribution (2024 limit) due to unforeseen medical expenses and insufficient cash reserves or FSA plan at work.

• Alvin made the greatest contribution (as a % of income) but received the least amount of tax benefits overall.

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