Health Savings Accounts (HSAs) have gained popularity among employees due to their triple tax advantages: pretax contributions, untaxed investment earnings, and penalty-free withdrawals for qualified medical expenses. However, tax professionals must be aware of the potential pitfalls and restrictions when incorporating HSAs into their clients' tax planning strategies.
Eligibility for HSAs is limited to individuals enrolled in qualifying high-deductible health insurance plans. Clients should carefully evaluate their medical needs and potential out-of-pocket costs before opting for an HSA. For those with chronic medical conditions or who anticipate high healthcare expenses, an HSA may not be the most suitable option. The high deductible plans needed for HSA participation will likely fall short of those clients’ coverage needs.
