But HSAs are a wonderful option for high-paid workers with high-deductible health insurance
One wonderful thing about my job — and there are many wonderful things — is that people are willing to spend the time to educate me and my colleagues about products not currently on our radar.
And what heavenly tax preferences. Contributions made by the employer are exempt from both federal income and FICA taxes accounts are not exempt from FICA taxes). Similarly, contributions made by employees — if made through an employer Section 125 salary reduction plan — are also exempt from federal income and FICA taxes. In addition, any investment earnings on employee/employer contributions accrue tax-free.
Those qualifying for an HSA in 2020 may contribute up to $3,550 for an individual and $7,100 for a family. Account holders ages 55 and older can contribute an additional $1,000. The contribution limits are indexed annually for inflation. Any unused balances can be carried over from one year to the next without any limit. This provision makes HSAs much more valuable than flexible spending accounts, which have to be exhausted by the end of each year.
In the meantime, who benefits from these generous tax preferences for HSAs? The higher paid, of course. They face higher tax rates, so the exemptions of contributions and investment earnings and tax-free withdrawals are much more valuable to them than to the lower paid. Also, higher earners are more likely to be constrained by the contribution limits on retirement accounts and look to HSAs as an additional means of tax-preferred saving.
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