Published by Taylor Financial Group
Last week, we talked about the rising health care costs and what a huge impact this could have on your retirement. This week, we want to highlight the Health Savings Account (HSA), which has been around since 2004, but has recently grown in popularity. And, rightfully so! Ultimately, the changes that have been occurring in the health care system have put pressure on us – Americans – to figure out how we are going to pay for our medical expenses – now and in the future. Gone are the days of low-deductible health insurance plans that cover just about everything. We have no choice but to take control of our own health care, and HSAs can be a salvation! Here are a few of our favorite things about HSAs.
You are Likely Eligible to Open a Health Savings Account
If you’re enrolled in a high-deductible health care plan, then you’re eligible to open an HSA. These days, most health care plans are high-deductible, otherwise, you’re paying a hefty premium. Typical plans nowadays have a lower monthly premium with higher out-of-pocket expenses. If you’re not sure which type of plan you have, call your insurance company to confirm. Or call us and we will help you figure it out.
The Money You Contribute to an HSA Can Be Used Tax Free
You can use HSA funds to pay for deductibles, copays, and other qualified health care expenses – without having to pay federal income taxes. (Not to mention, by the way, that the money you contribute is also tax free at the time of contribution.) For instance, if your insurance plan does not cover dental or vision services, you can use your HSA to pay for those expenses. The best part is that whatever money you haven’t used at the end of the year can be rolled over year after year, which means you never lose what you contribute. And, contribution limits have nearly doubled since the passing of the new health care bill in May of this year. Before, you could only contribute up to $3,400 per person, per year. Now, the limit is $6,550 per person. And for families, the contribution limit went from $6,750 to $13,100. Huge difference!
Also, HSAs can be transferred from one HSA to another without any tax penalties. So, even if you’re leaving a job and your HSA is employer-sponsored, don’t fret! Just move your HSA to your next employer-sponsored HSA account or find your own.
HSAs Are Essentially Retirement Savings Accounts
For those of you who have maxed out your 401(k) and IRA contributions for the year, an HSA is another tax-deferred way to save your money. And, since you can carry the balance over from year to year, in the long term, you could save a whole lot! In fact, CNN Money reported that if you contributed the max allowed for 40 years (without using any of it for actual health care costs), you could save anywhere from $360,000 to $1.1 million, depending on the rate of return. Isn’t that incredible? Obviously, the point of an HSA is to use it for medical expenses whenever it’s necessary, but this example just illustrates what’s possible in the most extreme savings circumstance. Even more, after age 65, no penalty tax applies on withdrawals regardless of what they are used for. How cool is that?
If you you’ve been disregarding HSA accounts, now is the time to change your mind! We hope you now see how much an HSA can work for you! Give us a call if you have questions about opening an HSA account or how to use an HSA to help you plan for retirement.
Sources:
CNN Money, 3 Things to Know About Health Savings Accounts, May 9, 2017
The Balance, Why You Might Want to Fund an HSA Instead of an IRA, August 13, 2017
Securities offered through Cetera Advisor Networks LLC, Member FINRA/SIPC. Investment advisory services offered through CWM, LLC, an SEC Registered Investment Advisor. Cetera Advisor Networks LLC is under separate ownership from any other named entity.