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Supercharge Your Savings: Unlocking the Tax Advantages of an HSA in TN

Written by Andrew Darlington | February 5, 2025 at 3:39 PM

Are you looking for a smarter way to manage your healthcare expenses and boost your savings? In Tennessee, a Health Savings Account (HSA) might be just what you need. Many people simply pay their medical bills out of pocket, but an HSA offers powerful tax benefits that can significantly improve your financial health. Let's explore why contributing to an HSA is a smart move.

What is an HSA?

An HSA is a tax-advantaged savings account that can be used to pay for qualified medical expenses. It's available to individuals and families who are enrolled in a High Deductible Health Plan (HDHP). Think of it as a personal healthcare piggy bank that grows tax-free!

The Triple Tax Advantage: The Real HSA Powerhouse

The real magic of an HSA lies in its triple tax advantage:

  1. Tax-Deductible Contributions: Contributions you make to your HSA are tax-deductible, even if you don't itemize your deductions on your taxes. This lowers your taxable income, putting more money back in your pocket. For example, if you contribute $4,300 (the 2025 individual limit) and are in the 15% tax bracket, you'd save $645 in taxes!  If you are offered an HSA through your employer's group health insurance plan, you will also save your payroll taxes which is around 7.5%!  That is another $322! 
  2. Tax-Free Growth: The money in your HSA grows tax-free. This means your investment earnings won't be taxed, allowing your savings to compound faster.
  3. Tax-Free Withdrawals: You can withdraw money from your HSA tax-free to pay for qualified medical expenses. This includes doctor's visits, prescriptions, hospital stays, and even some over-the-counter medications like Benadryl, Advil, and Tylenol.  Check out our blog on other eligible expenses here.

HSA vs. Paying Out of Pocket: A Clear Winner

Let's illustrate the power of an HSA with an example. Imagine you have a $1,000 medical expense and you make about $50,000 per year.  You are going to pay about 15% in taxes plus your payroll tax of around 7.50% for a total of around 22% in taxes.

  • Scenario 1: Paying Out of Pocket: You simply pay the $1,000 from your bank account.
  • Scenario 2: Using an HSA: You put $1,000 into your HSA through payroll deduction. Because of the tax deduction when you contributed, that $1,000 actually actually saved you $222 in taxes (so it only cost you about $780), and the interest you get on the money grew tax-free!  Even if you can not put in the money through payroll deduction, you still saved $150 on your tax bill.  

As you can see, using an HSA for medical expenses is almost always more advantageous than paying out of pocket.

Who Can Benefit from an HSA?

HSAs are a great option for individuals and families in Tennessee who:

  • Are generally healthy and don't anticipate high medical costs.
  • Want to save money on healthcare expenses.
  • Are looking for a tax-advantaged way to save for retirement (you can use your HSA for non-medical expenses after age 65, though they will be taxed as normal income).

Getting Started with an HSA in Tennessee

To open an HSA, you'll need to enroll in an HDHP. We can help you find the right HDHP for your needs and guide you through the process of setting up your HSA. We can also help business owners in Tennessee put together a group health plan with HSA integration.

Ready to Unlock the Tax Benefits of an HSA?

Don't leave money on the table! Contact us today for a free consultation. We can help you understand your options and determine if an HSA is the right fit for you or your business. Call us at 423-292-4142 to get started.

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