Showing posts with label HSA. Show all posts
Showing posts with label HSA. Show all posts

Monday, August 27, 2018

Prepare for Retirement with an HSA



Retirement planning isn't something that happens by chance. It requires planning, financial commitment, and a long-term perspective. No matter where you are in your retirement planning process, we have an additional way to save tax-free funds for retirement. Enter the HSA (health savings account).

HSA Overview


By all intents and purposes, HSAs were designed to help individual and families save pre-tax funds for qualified out-of-pocket medical expenses. It creates a clear path to save money and reduce the cost of health services and expenses.


The benefits of an HSA are that they provide triple tax-tax advantages: tax-deductible contributions, tax-free growth, and tax-free distributions (as long as they are used for qualified out-of-pocket medical expenses). This sounds great for health costs, but how does it connect to retirement?

After the age of 65, you can use your HSA funds for anything, just like A 401(k) or IRA. In fact, an HSA has no mandatory distributions in retirement. You get to decide when and if to use those pre-tax assets or sell investments in your HSA account. You can let your HSA funds grow into your 70s, 80s, and 90s.


Extra Tax-Free Retirement Savings


While the tax advantages of an HSA are clear, maybe the real value is an additional retirement savings account. Combining the savings power of a 401(k), IRA and HSA to create the only triple threat for retirement savings. That means more tax savings and more money for you in retirement.


Plan for Health Costs


Even with all of your detailed retirement planning, you might have missed the massive impact healthcare costs can have on your retirement savings nest-egg. According to a recent Fidelity Report, healthcare costs are expected to exceed $275,000 per couple in retirement. This is on top of Medicare coverage. 






HSAs can cover these expected health costs, so you can use your 401(k) or IRA for the stuff you want. Maybe some world travel?


Don't Wait to Open an HSA


HSA savings opportunities are based on HSA-eligibility. You must have an HSA-eligible health plan to contribute to an HSA. You can, however, use any accumulated HSA funds not matter your health plan. An HSA account is for life.

Your retirement planning might be in full swing, or you might be just getting started. No matter where you are in the retirement planning process, you can open an HSA to accelerate your retirement savings.


Monday, January 6, 2014

Are Health Savings Accounts the Next Retirement Plan?

retirement
retirement (Photo credit: 401(K) 2013)
It is no secret that end of life care consumes the majority of health care dollars. In fact, about 80% of all money spent on health care is spent during the last two years of a person's life. The problem with this is that many people have exhausted savings and sold off assets by that point to afford care. Health savings accounts (HSAs) may provide a solution to the problems of health care expenditures in old age. In some ways, they are like a retirement plan for your health needs. 


Qualified Expenses


HSAs, such as those offered by HSAforAmerica.com, are health care plans that provide tax benefits. In essence, as long as the money that is put into an HSA is spent on health care, it is tax free. This feature of HSAs has led many to compare them to individual retirement accounts (IRAs) and other tax-advantaged retirement plans. In truth, HSAs are even better than most IRAs because while HSA monies are guaranteed never to be taxed if spent on health care needs.

Qualified expenses can include a number of things that might traditionally be thought of as lodging. For instance, nursing home and retirement community expenses are completely covered so long as the individual lives in the facility due to medical necessity. Even hotel stays, home improvements, care equipment, alternative medicine, certain types of furniture, and more are covered if necessary for medical care. That means that room, board, transportation, and meals can be paid for, tax free, from HSA savings.

Essentially, the HSA offers a true tax free way to save for retirement. Though it may seem like a gimmick, the truth is that it is cheaper to pay for end of life care through an HSA than through Medicare or traditional insurance. HSA money is simply earnings that have been set aside over time. The best way to look at an HSA as encouragement to save for retirement, something everyone ought to be doing anyway.

As a final note, at age 65, HSA money can be withdrawn for non-medical purposes without penalty. Though you will pay tax on the money, it works just like an IRA, so the tax rate is lower than for other types of income. That means that an HSA is probably a better safety net for most people than an IRA due the flexibility that an HSA offers.

How to Treat an HSA Like a Retirement Account


Start Early


The key to a successful HSA that will see an individual through retirement is to start early. An account that is allowed to grow relatively untouched, for an average of 20 years, will be worth a substantial amount of money after compound interest is considered. If you can find a job with an employer who contributes, especially early in your career, savings will accumulate even faster.

Use Other Accounts


There is no rule that says you must use HSA funds before you use other monies to pay for health care. If you can afford it, then you might be further ahead to pay for medical costs without using HSA funds. Then, the roll over from year to year will be greater and the compounding effect will be enhanced.

Don't Touch


Though it will be tempting, from time to time, to use HSA money for some large expense beyond health care, don't do it. The penalty for doing so is 20% over and above the tax you will pay by claiming the withdrawal as income. Leave the money where it is, unless you need it for health care.

Coming Out Ahead


If you start early and save diligently, an HSA could be the best retirement plan you invest in. Remember that HSA funds can be invested, so don't be afraid to go for mutual funds or other investments just as you would with other retirement income. Remember that you are investing in your health with this money, so treat it with the respect it deserves.

Ron Sheffer researches money matters in the healthcare industry. He often blogs about his insights to help people make smart decisions.




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