You may have discovered the immediate benefits of a Health Savings Account (HSA) as a tax-advantaged way to set money aside for current out-of-pocket health expenses. But are you aware that money you save can be used to cover a wide range of medical expenses, including insurance premiums, in retirement?
Here’s what you need to know about HSAs.
HSAs are savings accounts associated with specific types of health insurance policies. To participate in an HSA, you must be enrolled in a high-deductible health plan (HDHP). This can either be through an employer-offered plan or by purchasing an individual policy. In 2022, the policy must have a deductible of at least $1,400 for individuals and $2,800 for families to qualify for HSA participation.
The maximum annual contribution in 2022 is $3,650 for individuals and $7,300 for families. If you’re 55 and over, you can contribute an extra $1,000 per year.
Once you enroll in Medicare, you’re no longer able to make contributions. However, you can still withdraw HSA funds tax-free. Those funds can be used for a variety of medical expenses, including payment of Medicare premiums.
HSAs are unique in that they’re triple-tax-advantaged. This means:
HSAs also offer significant flexibility in how the money is used and when. This can become particularly valuable in retirement.
Like a 401(k) or IRA, you can invest HSA dollars (once you’ve reached a minimum balance threshold). This gives you the opportunity to grow your savings over time.
Here are some important details about investing HSA dollars:
Your HSA investment strategy should work in conjunction with your overall investment strategy, including retirement accounts and other investment accounts. Consider working with a financial professional to determine the most appropriate investment strategy for you.
It’s estimated that the average couple turning age 65 will need close to $300,000 over the course of their retirement to cover healthcare expenses. That includes everything from insurance premiums to co-pays and deductibles to prescription drug costs and other expenses.1
HSAs offer critical benefits that can help address this reality:
If you’re covered under a qualified HDHP with an HSA component, contribute as much as you can, up to the maximum allowed. The sooner you begin setting money aside in an HSA, the greater the likelihood it can play a role in covering your healthcare costs in your retirement.
Invest dollars you don’t need to meet medical needs today to build wealth for the future. Having a well-funded HSA in retirement may allow you to dedicate other savings and sources of retirement income to meet other living expenses outside of healthcare needs.
With medical care representing a significant expense in retirement, HSAs take on added importance as a tool to help you manage this challenge. Take a closer look at how they can play a role in your retirement plan.
HSAs are just one account to consider when saving for retirement. Learn how much you should save for retirement each year.