---
title: The Holy Grail of Tax Planning - HSA's
description: Health Savings Account, HSA, Roth IRA, traditional IRA, tax planning
image: https://info.ongandcompany.com/hubfs/HSA.png
---

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# The Holy Grail of Tax Planning - HSA's

[Richard Ong](https://info.ongandcompany.com/blog/author/richard-ong) / August 17, 2016 /

[Health Insurance](https://info.ongandcompany.com/blog/topic/health-insurance)

![](https://app.hubspot.com/settings/avatar/89ca6f67445537c2c631f1fe9d43c977)

Before the advent of today's Health Savings Accounts (HSA's) created by Congress in 2003, taxpayers generally had three choices in deciding how to sst aside money for the future.

The easiest and, accordingly, the least effective option was to open or add to a bank savings account or a brokerage account if access to the stock and bond market was desired. This option provided no tax benefit whatsover.

A second option was to add money to a "retirement" account that enabled the taxpayer to obtain immediate tax savings by taking an income tax deduction on their income tax returns (traditional IRA) or by having the amount excluded from his or her taxable wage (employer's qualified plan). This option provided the tax benefits of an immediate reduction in income taxes as well as the deferral of income tax on any income or growth of the investment, thereby shifting all taxes into the future when the funds are withdrawn fro the account.

The third option referred to as Roth IRA's and/or Roth 401(k)'s became available in 1997. Similar to the second option, taxpayers could choose to trade the immediate tax deduction or exclusion for tax-free growth of their investment. Under the Roth approach, no income taxes are paid on qualifying distributions from the account.

What if there was a way to combine the best features of the traditional (option 2) and the Roth (option 3) investment options? Well let me intoduce you to the Health Savings Account. Described as an IRA on steroids, the HSA can provide  an immediate tax deduction, tax-free income and growth and tax-free distributions.

**HSAs** were established as part of the Medicare Prescription Drug, Improvement, and Modernization Act, signed into law by President George W. Bush on December 8, 2003. There are annual limits and eligibilty requirements to follow to obtain the tax benefits of the HSA. For example, your underlying health insurance coverage must be an "HSA-eligible" policy. Most commercial banks offer these accounts and allow for account balances in excess of a base amount (typically $1,000) to be invested in the equity and/or bond market.

Please let me know if you would like to discuss how an HSA might work for you.

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