Making the Most of Your HSA

Making the Most of Your HSA

July 27, 2022
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The average couple retiring today needs a whopping $315,000 to cover the cost of health care throughout their retirement.You’ll want to plan for those future health costs. Have you considered that your HSA (Health Savings Account) can be more than just a medical savings account? Your HSA investment options can help you save for doctor visits and prescriptions, plus create an additional tax-free cash flow to pay for expenses during retirement. 

Take a look at these four tax benefits of an HSA:

First, your contribution is tax-deductible.

Second, once inside your HSA, your money grows tax-free.

Third, when used for eligible healthcare costs, withdrawals are tax-free.

Fourth, you can keep the account even in retirement to pay medical bills.

BONUS: Your HSA can lower your tax bill by reducing your taxable income. For example, if you put $2,000 into an HSA in a year, you lower your taxable income by $2,000!

An HSA is a tax-advantaged savings account paired with a high-deductible health plan (HDHP) that can help you pay for medical expenses—both now and in the future. Your HSA usually starts as a cash account, which earns interest like a savings account. But once you reach a certain balance, you can change your HSA into an investment account, which functions like an IRA. 

1. Lower monthly premiums help you save money. 

Having an HSA-qualified, high-deductible health plan means you’ll pay less monthly premiums than a traditional health plan. The downside of a higher deductible is that you’ll need to pay more before your insurance kicks in. 

2. HSAs come with some fantastic financial benefits. 

Many people contribute to their HSA like a savings account, putting money in and letting it sit until they need it, then pulling it back out. Currently, only about 9% of HSAs are invested. You can make your HSA work for you by investing the money in stocks, bonds, ETFs, and mutual funds to encourage growth. (If your work-sponsored plan doesn’t offer this option, you can transfer the funds to a personal HSA.)

Important Note:Going this route may require you to pay for immediate medical expenses another way and then reimburse yourself later from your invested HSA. When you turn 65, that HSA will perform like a traditional IRA—you can take the money out for whatever you like, but you’ll have to pay taxes.

3. You own your HSA, and it rolls over each year.

The great thing about an HSA is that it’s entirely yours. Those funds are yours to use for qualified expenses. Your HSA balance rolls over year-to-year, giving you access to the money in the account. 

On the flip side, at 65, you become eligible for Medicare coverage. Once you enroll in Medicare, you can’t contribute to your HSA anymore, but you can still use the money in your HSA tax-free for medical expenses. That makes using an HSA a perfect option for covering health costs in your retirement years.

It’s worth noting that having an HSA also means there’s no minimum distribution, so you can keep the money in your HSA as long as you like.

Adapted from CNBC.com1

Adapted from Investors.com2

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This document is for educational purposes only and should not be construed as legal or tax advice. One should consult a legal or tax professional regarding their own personal situation. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products offered by an insurance company. They do not refer in any way to securities or investment advisory products. Insurance policy applications are vetted through an underwriting process set forth by the issuing insurance company. Some applications may not be accepted based upon adverse underwriting results. Death benefit payouts are based upon the claims paying ability of the issuing insurance company. The firm providing this document is not affiliated with the Social Security Administration or any other government entity.

1 https://www.cnbc.com/2022/05/16/americans-can-expect-to-pay-a-lot-more-for-medical-care-in-retirement.html

2 https://www.investors.com/etfs-and-funds/personal-finance/hsa-tips-make-hsa-money-grow/

3 https://dechtmanwealth.com/22-questions-about-retirement/

4 https://www.cnet.com/health/sleep/what-it-means-to-dream-about-fire-death-falling-flying/

5 https://youtu.be/sw4DmP1xwXc