Planning for the Future with Health Savings Accounts

Health Savings Accounts (HSAs) provide a unique means to fund medical expenses in retirement. If you wish to retire early, an HSA can help cover health care expenses before becoming eligible for Medicare.

Good things come to those who wait? If you have a Health Savings Account (HSA), that might actually be the case.

An HSA is a nest egg for future health care expenses.

If you leave your money in an HSA to accumulate and grow while paying for current medical expenses from another source, you can reap the benefits later in life – when you will likely need them most.

Similar to 401(k)s and individual retirement accounts (IRAs), an HSA allows participants to allocate money to investment options. There are no federal taxes on the money you contribute through payroll deduction or on any other investment earnings while the money is in the account. Unlike the plans mentioned above, there are no taxes on qualified withdrawals. 

If, in your younger years, you pay for medical expenses incurred after the HSA was established from another account and keep the receipts, you can withdraw that money years – if not decades.

HSAs can be a useful tool to save for the future. Rread these key takeaways that you should know about HSAs:

1. It can plug a gap. 

People who want to retire early often encounter a roadblock when they realize that there’s a gap between their retirement age and when they’re eligible for Medicare.

Though premiums for health insurance other than Medicare are generally not qualified expenses, you can use HSA money for deductibles associated with the health insurance plan, as well as co-pays and prescription drug costs.

2. The tax-free withdrawals can fund retirement expenses.

If you establish an HSA but do not tap it for qualified expenses – and retain the receipts – you can retroactively go back and withdraw that money tax-free when you need it down the road. 

HSA money can be taken out for past paid qualified health care expenses and used for anything, such as unplanned home repairs, a vacation or a new car as long as you saved the receipts from the qualified expenses.

3. It’s important to carefully manage withdrawals.

How you manage HSA withdrawals will change over your lifetime.

For example, two important considerations are the balance of the HSA and marital status. Upon death, HSA accounts pass to the living spouse and retain all tax features.

There may be situations where it would be most advantageous to spend down the balance of the HSA. That being said, there are other scenarios where you might want to name your estate as the beneficiary of the HSA.

An HSA provides a unique combination of tax benefits not available with any other account. Consider working with an advisor to create a pool of money to help manage expenses in your retirement years.

For a deeper dive into the characteristics and benefits of HSAs, read the full-length article below.


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Planning for the Future with HSAs

If you leave your money in an HSA to accumulate and grow while paying for current medical expenses from another source, you can reap the benefits later in life – when you will likely need them most.

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