HSAs are tax-advantaged savings accounts that aim at assisting individuals with high-deductible health plans (HDHPs) in paying for out-of-pocket medical expenses. Although these accounts have been available since 2004, far too few qualifying Americans have taken advantage of them<\/p>\n
All of this means that customers who have HSAs, as well as those who are entitled but haven\u2019t opened one, are losing out on a fantastic opportunity for financing their retirement years. It\u2019s time to start something new.<\/p>\n
Benefits of a Health Savings Account<\/span><\/h3>\nOne can make contributions to an HSA through payroll<\/a> deductions or your own funds. If the latter is the case, they are tax exempt even if you do not itemize. If you pay for them with your own money, they call it pre-tax. This means they minimize your federal and state income tax liability\u2014and they\u2019re not subject to FICA taxes, either.<\/p>\nThe money in your account grows tax-free. There will be no tax on any interest, dividends, or capital gains you earn. Any donations made to your HSA by your employer do not have to be part of your taxable income.<\/p>\n
Withdrawals for eligible medical costs are exempt from taxation. This is a significant advantage with an HSA over a conventional 401(k) or IRA as a retirement vehicle. When you begin to withdraw funds from those plans, you must pay income tax on those funds, regardless of how you use them.<\/p>\n
A Health Savings Account, unlike a 401(k) or an IRA, does not require the account holder to begin withdrawing funds at a certain age.<\/p>\n
You can keep the account open for as long as you want, but you will no longer be able to pay until you enroll in Medicare.6 You become eligible for Medicare at the age of 65 and will be automatically enrolled in Parts A and B if you are already receiving Social Security.<\/p>\n
Furthermore, you can roll the balance over from year to year; unlike a flexible spending account. An HSA can also accompany you to a new job. You own the account, not your boss, which means it is completely flexible and can go wherever and wherever you want.<\/p>\n
Requirements for a Health Savings Account (HSA)<\/span><\/h2>\nTo be qualified for an HSA, you must meet the IRS\u2019s criteria, which are as follows:<\/p>\n
\n- On the first of the month, you must be protected by a qualified high-deductible health plan (HDHP).<\/li>\n
- You have no other health coverage than what the IRS allows.<\/li>\n
- You do not have Medicare, TRICARE, or TRICARE for Life.<\/li>\n
- Also, you cannot claim as a dependent on another person\u2019s tax return.<\/li>\n
- Except for preventive treatment, you have not earned Veterans Affairs (VA) benefits in the last three months. This exclusion does not apply if you have a VA impairment ranking.<\/li>\n
- You do not have a health insurance<\/a> FSA or a health reimbursement plan (HRA). Alternative plan designs, such as a restricted-purpose FSA or HRA, may be allowed.<\/li>\n<\/ul>\n
Other limitations and exceptions may apply. We suggest that you speak with a tax, legal, or financial professional about your specific Health savings account Requirements.<\/p>\n
Read Also: HSA Investment: Best Options and Tax Benefits<\/a><\/strong><\/p>\nAdult Children Coverage<\/span><\/h3>\nAdult children up to the age of 26 have coverage under their parents\u2019 insurance benefits, including high-deductible plans, under the health care reform law of 2010.<\/p>\n
The tax laws governing HSAs have not changed, but an adult child must also be deemed a tax dependent in order for his or her medical costs to be paid or reimbursed from a parent\u2019s HSA.<\/p>\n
If you are under the age of 26 and you are under your parent\u2019s HSA-eligible, high-deductible health plan, you will be able to open and finance your own HSA and contribute up to the IRS family limit. The conditions outlined above remain in effect. Consult an experienced benefits manager or tax advisor.<\/p>\n
How to use a Health Savings Account (HSA)<\/span><\/h2>\n\n![\"HSA](\"https:\/\/businessyield.com\/wp-content\/uploads\/2021\/04\/download-1-1.png\")
<\/a><\/figure>\n<\/div>\nOverall, an HDHP can be more cost-effective than you think, particularly when you consider its retirement benefits. Let\u2019s look at how you may be able to use the features of an HSA to more effectively and robustly finance your retirement.<\/p>\n
Max Out HSA Contributions by Age 65.<\/span><\/h3>\nAs previously stated, your HSA payments are tax-deductible before you enroll in Medicare. Employer contributions are part of the contribution caps of $3,550 for self-only coverage and $7,100 for family coverage. The HSA contribution limits are adjusted for inflation on an annual basis.<\/p>\n
If you have an HSA and are 55 or older, you can make an additional \u201ccatch-up\u201d donation of $1,000 a year, and your partner can do the same, as long as each of you has your own HSA account.<\/p>\n
Regardless of your salary, you can contribute up to the cap, and your entire donation is tax-deductible. You can also contribute during years when you don\u2019t make much money. If you are self-employed, you may also contribute.<\/p>\n
In 2023, the contribution cap for family health<\/a> savings plans will be increased. A self-only HSA has a donation limit of $3,600.<\/p>\nDon\u2019t Spend Your HSA Contributions<\/span><\/h3>\nThis may seem counterintuitive, but we\u2019re looking at Health Savings Account as mainly an investment vehicle. To be sure, the fundamental concept behind an HSA is to provide people with high-deductible insurance plans with a tax break to help them handle their out-of-pocket medical expenses.<\/p>\n
However, because of the triple tax benefit, the best way to use an HSA is to treat it as an investment tool that will boost your financial picture in retirement. And the easiest way to do that is to never spend your HSA contributions during your working years. Also, pay your medical expenses out of pocket.<\/p>\n
In other words, consider your HSA investments to be untouchable before you retire, much like your contributions to any other retirement plan. Remember that the IRS does not ask you to take HSA distributions in any year, before or after retirement.<\/p>\n
HSA Contributions Should Be Invested Wisely<\/span><\/h3>\nOf course, the secret to optimizing your unspent contributions is to spend them wisely. Your investment policy should be consistent with that of your other retirement assets, such as a 401(k) plan or an IRA. When choosing how to invest <\/a>your HSA funds, keep your whole portfolio in mind. This is so that your overall diversification plan and risk profile are where you want them to be.<\/p>\nHow much could you Receive?<\/span><\/h3>\nLet\u2019s run some quick calculations to see how well this HSA savings and investment plan will pay off. We\u2019ll use a near-best-case scenario and assume you\u2019re 21. You make the maximum permissible contribution to a self-only scheme last year, and you contribute every year until you\u2019re 65. We\u2019ll assume you spend all of your contributions and immediately reinvest all of your dividends in the stock market. Thus, you\u2019ll be collecting an annual return of 8% on average, and that your plan has no fees. Your Health Savings Account will have more than $1.2 million by the time you retire.<\/p>\n
What about a less optimistic estimate? Assume you\u2019re 40 years old and you only put in $100 a month until you\u2019re 65, receiving a 3% annual return. You\u2019d still have about $45,000 by the time you retire. To play with the numbers for your specific case, use an online HSA calculator.<\/p>\n
Maximize\u00a0Your HSA Assets<\/span><\/h3>\nHere are some ideas about how to put your accumulated HSA investments and investment gains to use in retirement. Remember that distributions for qualified medical costs are not taxable, so use the money for those expenses only if possible. Since there are no mandatory minimum withdrawals, you can keep your money invested until you need it.
\nIf you need to use the distributions for something else, they would be taxed. However, after the age of 65, you will not be subject to the 20% levy. Using HSA assets for reasons other than eligible medical costs is usually less damaging to your finances after you hit retirement age, and you could be in a lower tax bracket if you have stopped working, shortened your hours, or changed occupations.<\/p>\n
Choose a Beneficiary<\/span><\/h3>\nWhen you open your HSA, you will be asked to name a beneficiary<\/a> to whom any funds remaining in the account should be distributed in the event of your death. If you\u2019re married, your partner is the right person to consider because they will inherit the balance tax-free. (However, as with any investment with a beneficiary, you should review your designations on a regular basis since death, divorce, or other life changes can alter your choices.)<\/p>\nPay for Medical Expenses after Retirement<\/span><\/h3>\nAccording to Fidelity Investments\u2019 most recent Retirement Health Care Expense Report, the cost of healthcare in retirement for a couple turning 65 in 2020 is $295,000, up from $285,000 in 2019. Funds saved in an HSA will help with such skyrocketing expenses.<\/p>\n
Qualified payments on which HSA withdrawals are tax-free include:<\/p>\n
\n- Copayments for office visits<\/li>\n
- Deductibles for health benefits<\/li>\n
- Dental charges<\/li>\n
- Optical treatment (eye exams and eyeglasses)<\/li>\n
- Prescription medications and insulin<\/li>\n
- Premiums for Medicare<\/a><\/li>\n
- Hearing aids<\/li>\n
- Medical bills and physical therapy bills<\/li>\n
- Walkers and wheelchairs<\/li>\n
- X-rays<\/li>\n<\/ul>\n
The money in your account grows tax-free. There will be no tax on any interest, dividends, or capital gains you earn. Any donations made to your HSA by your employer do not have to be part of your taxable income.<\/p>\n
Withdrawals for eligible medical costs are exempt from taxation. This is a significant advantage with an HSA over a conventional 401(k) or IRA as a retirement vehicle. When you begin to withdraw funds from those plans, you must pay income tax on those funds, regardless of how you use them.<\/p>\n
A Health Savings Account, unlike a 401(k) or an IRA, does not require the account holder to begin withdrawing funds at a certain age.<\/p>\n
You can keep the account open for as long as you want, but you will no longer be able to pay until you enroll in Medicare.6 You become eligible for Medicare at the age of 65 and will be automatically enrolled in Parts A and B if you are already receiving Social Security.<\/p>\n
Furthermore, you can roll the balance over from year to year; unlike a flexible spending account. An HSA can also accompany you to a new job. You own the account, not your boss, which means it is completely flexible and can go wherever and wherever you want.<\/p>\n
Requirements for a Health Savings Account (HSA)<\/span><\/h2>\nTo be qualified for an HSA, you must meet the IRS\u2019s criteria, which are as follows:<\/p>\n
\n- On the first of the month, you must be protected by a qualified high-deductible health plan (HDHP).<\/li>\n
- You have no other health coverage than what the IRS allows.<\/li>\n
- You do not have Medicare, TRICARE, or TRICARE for Life.<\/li>\n
- Also, you cannot claim as a dependent on another person\u2019s tax return.<\/li>\n
- Except for preventive treatment, you have not earned Veterans Affairs (VA) benefits in the last three months. This exclusion does not apply if you have a VA impairment ranking.<\/li>\n
- You do not have a health insurance<\/a> FSA or a health reimbursement plan (HRA). Alternative plan designs, such as a restricted-purpose FSA or HRA, may be allowed.<\/li>\n<\/ul>\n
Other limitations and exceptions may apply. We suggest that you speak with a tax, legal, or financial professional about your specific Health savings account Requirements.<\/p>\n
Read Also: HSA Investment: Best Options and Tax Benefits<\/a><\/strong><\/p>\nAdult Children Coverage<\/span><\/h3>\nAdult children up to the age of 26 have coverage under their parents\u2019 insurance benefits, including high-deductible plans, under the health care reform law of 2010.<\/p>\n
The tax laws governing HSAs have not changed, but an adult child must also be deemed a tax dependent in order for his or her medical costs to be paid or reimbursed from a parent\u2019s HSA.<\/p>\n
If you are under the age of 26 and you are under your parent\u2019s HSA-eligible, high-deductible health plan, you will be able to open and finance your own HSA and contribute up to the IRS family limit. The conditions outlined above remain in effect. Consult an experienced benefits manager or tax advisor.<\/p>\n
How to use a Health Savings Account (HSA)<\/span><\/h2>\n\n<\/a><\/figure>\n<\/div>\nOverall, an HDHP can be more cost-effective than you think, particularly when you consider its retirement benefits. Let\u2019s look at how you may be able to use the features of an HSA to more effectively and robustly finance your retirement.<\/p>\n
Max Out HSA Contributions by Age 65.<\/span><\/h3>\nAs previously stated, your HSA payments are tax-deductible before you enroll in Medicare. Employer contributions are part of the contribution caps of $3,550 for self-only coverage and $7,100 for family coverage. The HSA contribution limits are adjusted for inflation on an annual basis.<\/p>\n
If you have an HSA and are 55 or older, you can make an additional \u201ccatch-up\u201d donation of $1,000 a year, and your partner can do the same, as long as each of you has your own HSA account.<\/p>\n
Regardless of your salary, you can contribute up to the cap, and your entire donation is tax-deductible. You can also contribute during years when you don\u2019t make much money. If you are self-employed, you may also contribute.<\/p>\n
In 2023, the contribution cap for family health<\/a> savings plans will be increased. A self-only HSA has a donation limit of $3,600.<\/p>\nDon\u2019t Spend Your HSA Contributions<\/span><\/h3>\nThis may seem counterintuitive, but we\u2019re looking at Health Savings Account as mainly an investment vehicle. To be sure, the fundamental concept behind an HSA is to provide people with high-deductible insurance plans with a tax break to help them handle their out-of-pocket medical expenses.<\/p>\n
However, because of the triple tax benefit, the best way to use an HSA is to treat it as an investment tool that will boost your financial picture in retirement. And the easiest way to do that is to never spend your HSA contributions during your working years. Also, pay your medical expenses out of pocket.<\/p>\n
In other words, consider your HSA investments to be untouchable before you retire, much like your contributions to any other retirement plan. Remember that the IRS does not ask you to take HSA distributions in any year, before or after retirement.<\/p>\n
HSA Contributions Should Be Invested Wisely<\/span><\/h3>\nOf course, the secret to optimizing your unspent contributions is to spend them wisely. Your investment policy should be consistent with that of your other retirement assets, such as a 401(k) plan or an IRA. When choosing how to invest <\/a>your HSA funds, keep your whole portfolio in mind. This is so that your overall diversification plan and risk profile are where you want them to be.<\/p>\nHow much could you Receive?<\/span><\/h3>\nLet\u2019s run some quick calculations to see how well this HSA savings and investment plan will pay off. We\u2019ll use a near-best-case scenario and assume you\u2019re 21. You make the maximum permissible contribution to a self-only scheme last year, and you contribute every year until you\u2019re 65. We\u2019ll assume you spend all of your contributions and immediately reinvest all of your dividends in the stock market. Thus, you\u2019ll be collecting an annual return of 8% on average, and that your plan has no fees. Your Health Savings Account will have more than $1.2 million by the time you retire.<\/p>\n
What about a less optimistic estimate? Assume you\u2019re 40 years old and you only put in $100 a month until you\u2019re 65, receiving a 3% annual return. You\u2019d still have about $45,000 by the time you retire. To play with the numbers for your specific case, use an online HSA calculator.<\/p>\n
Maximize\u00a0Your HSA Assets<\/span><\/h3>\nHere are some ideas about how to put your accumulated HSA investments and investment gains to use in retirement. Remember that distributions for qualified medical costs are not taxable, so use the money for those expenses only if possible. Since there are no mandatory minimum withdrawals, you can keep your money invested until you need it.
\nIf you need to use the distributions for something else, they would be taxed. However, after the age of 65, you will not be subject to the 20% levy. Using HSA assets for reasons other than eligible medical costs is usually less damaging to your finances after you hit retirement age, and you could be in a lower tax bracket if you have stopped working, shortened your hours, or changed occupations.<\/p>\n
Choose a Beneficiary<\/span><\/h3>\nWhen you open your HSA, you will be asked to name a beneficiary<\/a> to whom any funds remaining in the account should be distributed in the event of your death. If you\u2019re married, your partner is the right person to consider because they will inherit the balance tax-free. (However, as with any investment with a beneficiary, you should review your designations on a regular basis since death, divorce, or other life changes can alter your choices.)<\/p>\nPay for Medical Expenses after Retirement<\/span><\/h3>\nAccording to Fidelity Investments\u2019 most recent Retirement Health Care Expense Report, the cost of healthcare in retirement for a couple turning 65 in 2020 is $295,000, up from $285,000 in 2019. Funds saved in an HSA will help with such skyrocketing expenses.<\/p>\n
Qualified payments on which HSA withdrawals are tax-free include:<\/p>\n
\n- Copayments for office visits<\/li>\n
- Deductibles for health benefits<\/li>\n
- Dental charges<\/li>\n
- Optical treatment (eye exams and eyeglasses)<\/li>\n
- Prescription medications and insulin<\/li>\n
- Premiums for Medicare<\/a><\/li>\n
- Hearing aids<\/li>\n
- Medical bills and physical therapy bills<\/li>\n
- Walkers and wheelchairs<\/li>\n
- X-rays<\/li>\n<\/ul>\n
Other limitations and exceptions may apply. We suggest that you speak with a tax, legal, or financial professional about your specific Health savings account Requirements.<\/p>\n
Read Also: HSA Investment: Best Options and Tax Benefits<\/a><\/strong><\/p>\n Adult children up to the age of 26 have coverage under their parents\u2019 insurance benefits, including high-deductible plans, under the health care reform law of 2010.<\/p>\n The tax laws governing HSAs have not changed, but an adult child must also be deemed a tax dependent in order for his or her medical costs to be paid or reimbursed from a parent\u2019s HSA.<\/p>\n If you are under the age of 26 and you are under your parent\u2019s HSA-eligible, high-deductible health plan, you will be able to open and finance your own HSA and contribute up to the IRS family limit. The conditions outlined above remain in effect. Consult an experienced benefits manager or tax advisor.<\/p>\n Overall, an HDHP can be more cost-effective than you think, particularly when you consider its retirement benefits. Let\u2019s look at how you may be able to use the features of an HSA to more effectively and robustly finance your retirement.<\/p>\n As previously stated, your HSA payments are tax-deductible before you enroll in Medicare. Employer contributions are part of the contribution caps of $3,550 for self-only coverage and $7,100 for family coverage. The HSA contribution limits are adjusted for inflation on an annual basis.<\/p>\n If you have an HSA and are 55 or older, you can make an additional \u201ccatch-up\u201d donation of $1,000 a year, and your partner can do the same, as long as each of you has your own HSA account.<\/p>\n Regardless of your salary, you can contribute up to the cap, and your entire donation is tax-deductible. You can also contribute during years when you don\u2019t make much money. If you are self-employed, you may also contribute.<\/p>\n In 2023, the contribution cap for family health<\/a> savings plans will be increased. A self-only HSA has a donation limit of $3,600.<\/p>\n This may seem counterintuitive, but we\u2019re looking at Health Savings Account as mainly an investment vehicle. To be sure, the fundamental concept behind an HSA is to provide people with high-deductible insurance plans with a tax break to help them handle their out-of-pocket medical expenses.<\/p>\n However, because of the triple tax benefit, the best way to use an HSA is to treat it as an investment tool that will boost your financial picture in retirement. And the easiest way to do that is to never spend your HSA contributions during your working years. Also, pay your medical expenses out of pocket.<\/p>\n In other words, consider your HSA investments to be untouchable before you retire, much like your contributions to any other retirement plan. Remember that the IRS does not ask you to take HSA distributions in any year, before or after retirement.<\/p>\n Of course, the secret to optimizing your unspent contributions is to spend them wisely. Your investment policy should be consistent with that of your other retirement assets, such as a 401(k) plan or an IRA. When choosing how to invest <\/a>your HSA funds, keep your whole portfolio in mind. This is so that your overall diversification plan and risk profile are where you want them to be.<\/p>\n Let\u2019s run some quick calculations to see how well this HSA savings and investment plan will pay off. We\u2019ll use a near-best-case scenario and assume you\u2019re 21. You make the maximum permissible contribution to a self-only scheme last year, and you contribute every year until you\u2019re 65. We\u2019ll assume you spend all of your contributions and immediately reinvest all of your dividends in the stock market. Thus, you\u2019ll be collecting an annual return of 8% on average, and that your plan has no fees. Your Health Savings Account will have more than $1.2 million by the time you retire.<\/p>\n What about a less optimistic estimate? Assume you\u2019re 40 years old and you only put in $100 a month until you\u2019re 65, receiving a 3% annual return. You\u2019d still have about $45,000 by the time you retire. To play with the numbers for your specific case, use an online HSA calculator.<\/p>\n Here are some ideas about how to put your accumulated HSA investments and investment gains to use in retirement. Remember that distributions for qualified medical costs are not taxable, so use the money for those expenses only if possible. Since there are no mandatory minimum withdrawals, you can keep your money invested until you need it. When you open your HSA, you will be asked to name a beneficiary<\/a> to whom any funds remaining in the account should be distributed in the event of your death. If you\u2019re married, your partner is the right person to consider because they will inherit the balance tax-free. (However, as with any investment with a beneficiary, you should review your designations on a regular basis since death, divorce, or other life changes can alter your choices.)<\/p>\n According to Fidelity Investments\u2019 most recent Retirement Health Care Expense Report, the cost of healthcare in retirement for a couple turning 65 in 2020 is $295,000, up from $285,000 in 2019. Funds saved in an HSA will help with such skyrocketing expenses.<\/p>\n Qualified payments on which HSA withdrawals are tax-free include:<\/p>\nAdult Children Coverage<\/span><\/h3>\n
How to use a Health Savings Account (HSA)<\/span><\/h2>\n
<\/a><\/figure>\n<\/div>\nMax Out HSA Contributions by Age 65.<\/span><\/h3>\n
Don\u2019t Spend Your HSA Contributions<\/span><\/h3>\n
HSA Contributions Should Be Invested Wisely<\/span><\/h3>\n
How much could you Receive?<\/span><\/h3>\n
Maximize\u00a0Your HSA Assets<\/span><\/h3>\n
\nIf you need to use the distributions for something else, they would be taxed. However, after the age of 65, you will not be subject to the 20% levy. Using HSA assets for reasons other than eligible medical costs is usually less damaging to your finances after you hit retirement age, and you could be in a lower tax bracket if you have stopped working, shortened your hours, or changed occupations.<\/p>\nChoose a Beneficiary<\/span><\/h3>\n
Pay for Medical Expenses after Retirement<\/span><\/h3>\n
\n