HSAs can also be powerful retirement saving tools

Health Savings Accounts (HSAs) are designed as tax-advantaged savings vehicles for funding uninsured health care expenses. But for those in relatively good health, they also may serve as an attractive retirement savings vehicle. Briefly, HSAs are available to people covered by a high-deductible health plan. Contributions to an HSA are tax deductible, and withdrawals used to pay for qualified unreimbursed medical expenses are tax-free.

You can make tax-deductible contributions to an HSA and take tax-free withdrawals to pay for uninsured medical expenses. For 2022, a “high deductible” plan is one with a deductible of $1,400 or more for individual coverage or $2,800 or more for family coverage. In addition, annual out-of-pocket expenses must not exceed $7,050 for individual coverage or $14,100 for family coverage.

This year, you can contribute up to $3,650 to an HSA — $7,300 if you have family coverage — plus an additional $1,000 if you’ll be 55 or older by the end of the year. If you’re fortunate enough not to need all of the funds in the account for medical expenses, they’ll continue to grow on a tax-deferred basis, providing a valuable supplement to your other retirement accounts.

Married filing separately: Is it ever a good idea?

For most married couples, filing jointly results in the lowest tax bill, especially when one spouse earns much more than the other. Suppose one spouse has $250,000 in taxable W-2 income and the other has $50,000 in taxable W-2 income. Presuming that the couple doesn’t itemize and they have no charitable contributions, if they file a joint return their tax liability is approximately $55,000. Filing separately would increase their total tax liability by more than $8,500. If their taxable W-2 incomes are $150,000 each, however, their combined tax liability would be the same, regardless of filing status.

In some cases, there may be advantages to filing separately. An example is when one spouse has excessive medical expenses. Medical expenses are deductible only to the extent that they exceed 7.5% of adjusted gross income (AGI). By filing separately, that spouse can reduce his or her AGI, boosting the deduction for medical expenses. Of course, to determine whether this strategy will work, you’ll need to weigh the tax benefits of the increased deduction against the tax increase (if any) resulting from filing separate returns.

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