Making the Most of Your HSA

The average couple retiring today needs a whopping $315,000 to cover the cost of health care throughout their retirement.1 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.2 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.

Preparing for medical and other expenses during retirement takes insight and expertise, and we’re here to help. Call us today at (540) 720-5656 and let’s talk.

• Adapted from CNBC.com1
• Adapted from Investors.com2