Question

A prospective client comes to you for some more expert planning advice. He has a high deductible health insurance plan with an HSA. What are the tax advantages to saving money in an HSA account and what benefits may be available if he chooses not to use the funds until the future? The client is also thinking about starting his own accounting business on the side and wants to know what self‐employment tax is. He is also want to know what advantages are associated with setting up an educational assistance program. The prospective client is also trying to figure out if he can contribute to an IRA, a SEP‐IRA, and his employer‐sponsored 401k plan. What factors should he be considering or aware of from a tax planning perspective?

Answer 1

What are the tax advantages to saving money in an HSA account and what benefits may be available if he chooses not to use the funds until the future

Many Expenses Qualify. Eligible expenses include a wide range of medical, dental and mental health services. They are explained in detail in IRS Publication 502, Medical and Dental Expenses.

Others Can Contribute. Contributions can come from you, your employer, a relative or anyone else who wants to add to your HSA. The Internal Revenue Service does, however, set limits. For 2019, for example, the limit is $3,500 for individuals and $7,000 for families, plus an additional $1,000 "catch-up" contribution for anyone age 55 or older by the end of the tax year.

Pre-Tax Contributions. Contributions are typically made with pre-tax dollars, through payroll deductions at your employer. As a result, they are not included in your gross income and are not subject to federal income taxes. In most states, contributions are not subject to state income taxes.

The advantage if amount not used would be there can be annual roll over to next years and there would be tax free interest income

Self‐employment tax ) is the Social Security and Medicare tax paid by self-employed individuals. It is similar to FICA which is the Social Security and Medicare taxes withheld from an employee's paycheck

Advantages are associated with setting up an educational assistance program.

an educational assistance program is “A type of employee benefit in which an employer reimburses employees for the costs associated with continuing education. Assistance usually comes in the form of reimbursements for tuition, fees and books. The main advantage of this is that this can attract and retain new industry talents thereby improving prodcutivity in long run