Planning for the Future with HSAs

Executive Summary

Health Savings Accounts (HSAs) can provide a unique means to fund medical expenses in retirement.  And for those who wish to retire early, they can help cover healthcare expenses before becoming Medicare eligible.

Key Points

  • HSAs offer a triple tax benefit - similar to traditional 401(k) and IRA plans, money can be contributed tax-free.  There are no taxes on the money you contribute nor on any investment earnings while the money is in the account. Unlike traditional 401(k)s and IRAs, there are no taxes on qualified withdrawals.  
  • You can create a nest egg for future healthcare expenses - you can leave your money in an HSA to accumulate and grow while using other funds to pay for current expenses. You can apply your HSA to not only cover current expenses but any past qualified expense that has been paid with non-HSA funds as long as you submit receipts.
  • Retirement funding - HSAs can be used to pay Medicare premiums, deductibles and co-pays and to cover medical expenses that are not covered by Medicare, such as hearing aids and most dental care. While premiums for health insurance other than Medicare are generally not qualified expenses, you can use HSA money for deductibles as well as co-pays and prescription drug costs.
  • How you manage HSA withdrawals evolves over your lifetime - Upon death, HSA accounts pass to the living spouse and retain all tax features. However, when HSAs pass to non-spousal beneficiaries, the balance becomes taxable income to the beneficiary.

Conclusion

An HSA provides unique tax benefits not available with any other account.  Through careful planning, you can create a pool of money to help manage healthcare expenses in retirement. 

 

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Planning for the Future with HSAs

"Did you know you could need more than $150k to fund healthcare in retirement?"


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