The Strategy

Boost your HSA's growth potential by making the maximum allowable contribution before December 31, and then contribute again as early as possible in the new year. This approach leverages the power of compound interest by giving your funds more time to grow tax-free.

Too often, we all procrastinate and wait until the last minute to contribute to our HSA accounts.  Think about this...over 10 years, if we make our contributions on Jan 1 vs Dec 31, you are gaining tremendous compounding.

How It Works

• Year-End Contribution: Before April 15, contribute the maximum limit for the current year.
• Early-Year Contribution: Immediately on January 1, contribute the maximum limit for the new year.

The Strategy

As an S Corporation owner, you can have your company make contributions to your HSA on your behalf. This method helps you avoid Federal Insurance Contributions Act (FICA) taxes on those contributions, and the amounts count toward your reasonable compensation.

How It Works

• Employer Contribution: The S Corp contributes directly to your HSA.
• Tax Treatment:
  • For the Company: Contributions are deductible as a business expense.
  • For You: Contributions are included in your gross income but not subject to FICA taxes.
    
    

1) You can pay for the HSA via your S Corporation ($8300 married, $4150 single)

2) This becomes Box 1 wages on your W2

3) Here is the trick:  This is exempt from FICA/FUTA, so no Box 3 or Box 5 impact.  The $8300 counts as S Corp reasonable compensation BUT it costs $0 in FICA.  

3a) If you as the shareholder instead paid personally, the same $8300 of reasonable comp (apples to apples) would be subject to FICA.  Thus - we are avoiding ~$1270 in FICA tax while getting them credit for reasonable comp.

Example:  RC is determined to be $10,000.  Normally, this means $10k subject to income and FICA tax (EE/ER).  By making this adjustment, the first $8300 is exempt from FICA but still counts as shareholder wages.

4) Adds to Box 12 as HSA

5) This is then deducted at the personal level (as usual with shareholder health)

= We just saved $1270 in FICA simply by making this a fringe benefit. 

The Strategy

Utilize a Qualified HSA Funding Distribution to make a one-time, tax-free rollover from your Individual Retirement Account (IRA) to your HSA. 
This move allows you to pay for medical expenses without incurring the 10% early withdrawal penalty or income taxes.  This can be a unique option in a period in which you are short on cash and have upcoming medical bills...

Considerations from our Experience:

• One-Time Transfer: Rollover up to your annual HSA contribution limit from your IRA.
• Tax Treatment: The rollover is not included in your gross income and isn't taxed.  No penalties!
• Contribution Limit: The rollover amount is limited to your annual HSA contribution limit for the year the distribution is made. This includes any catch-up contributions if you're 55 or older.
• Counts Toward Annual Limit: The amount transferred counts toward your annual HSA contribution limit. You cannot exceed this limit with the rollover.
• One-Time Transfer: You can only perform this rollover once in your lifetime.
• WARNING: Testing Period: You must remain HSA-eligible for 12 months following the month of the rollover. If you fail to remain eligible (e.g., you switch to a non-HDHP plan), the rollover amount will be included in your gross income and subject to a 10% penalty.

Maximize the growth potential of your HSA by investing in high-growth assets such as cryptocurrencies through a self-directed HSA.  This can be a homerun type of account given the triple threat nature of HSAs

How It Works

• Open a Self-Directed HSA: Choose a custodian that allows alternative investments.  At Anomaly, we have several partners we can introduce you to (Ask your PM)
• Investment Options: Invest in assets such as cryptocurrency, real estate, or private equity.
  
  

Example

• Initial Investment: $5,000 of your HSA is self directed into Bitcoin
• Growth Rate: 20% annual appreciation (hypothetical)
• Outcome: Account grows to $15,000 over a few years with $10,000 gains tax-free if used for qualified medical expenses OVER YOUR LIFETIME (SEE BELOW)

Instead of reimbursing yourself for medical expenses each year, pay out-of-pocket and let your HSA funds remain invested, growing tax-free over time.  
Then, reimburse yourself in the future when your HSA balance has grown significantly. We LOVE this strategy at Anomaly and multiple clients have deployed this. 

The Basics

• Pay Expenses Now: Use your non-HSA funds to cover medical costs.
• Save Documentation: Keep receipts and records of all qualified expenses.  We recommend a simple spreadsheet as well. 
• Reimburse Later: Withdraw funds tax-free from your HSA at a later date.  You can literally reimburse yourself 40 years later TAX FREE!
  
  

Example

• Annual Medical Expenses: $8,000
• Annual HSA Contribution: $8,000
• HSA Growth Rate: 7%
• Time Horizon: 10 years
  
  

Option 1: Immediate Reimbursement - what most people do

• Annual Contributions: $8,000
• Annual Withdrawals: $8,000
• HSA Balance After 10 Years: Approximately $0 (since contributions equal withdrawals)
• Total Tax-Free Withdrawals: $80,000 over 10 years
  
  

Option 2: Delayed Reimbursement - the advanced strategy!

• Annual Contributions: $8,000
• No Withdrawals: Allow the HSA to grow undisturbed.
• Total Tax-Free Withdrawals After 10 Years: $80,000 as a lump sum(reimbursement for expenses over the 10 years)
• Remaining HSA Balance: $30,531 continues to grow tax-free
  
  

As you can see this powerful strategy led to a $31k difference!

If you are interested in exploring these advanced HSA options please contact your PM and we are ready to help!