, the average couple age 65 in 2019 may need $285,000 in after tax dollars to cover their medical expenses. For those funding HSAs in their 20s, 30s and 40s, HSA dollars compounding over decades can make the difference in an individual having enough to retire comfortably or facing financial fragility in retirement.
“Finance 101 tells me that the earlier I start, the longer it has to compound, the bigger my savings balance,” explains Anna Kissick, Director of HSA Business Development at Liberty Savings Bank. She admits that for residents of California and New Jersey, not getting tax benefits would “force them to re-evaluate whether contributing to an HSA is worth it, even with the federal tax favored status.”
But that is only for taxpayers who fund through an employer plan. For those taxpayers who self- fund, they may also need to go on their resident state return and make the adjustment to their federal Adjusted Gross Income .But the journey isn’t over yet. In fact, that’s the simple part of the tax issue California and New Jersey taxpayers face.
Yet the tax system doesn’t take this into account because for Federal purposes, this is a tax-free transaction. But California residents need to report all the interest, dividends and capital gains inside their HSAs. As a result, taxpayers in those state needs to get their monthly statements and calculate by hand the growth of the funds inside the HSA.
That’s why you save the money you make in other places and make wise investments. I don’t trust my state to take care of me when I am old. I’m already retired and they don’t.
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