What if we told you that there’s a type of account that not only allowed you to put away pre-tax money toward qualified medical expenses, but could also help you bolster your retirement savings? Well, there is — the Health Savings Account (HSA). Here are some of its many benefits that you might not be aware of.
Triple Tax Savings. One of the biggest advantages of HSAs is the fact that your contributions are taken out of your paycheck before you pay taxes. Then, your money grows tax-free while it’s in your account. Finally, when you take out your money to use toward qualified expenses, you won’t pay taxes on that withdrawal either. The HSA represents the potential to use truly tax-free money.
Flexibility. Your HSA has the flexibility to help with medical expenses as well as your long-term retirement planning. In addition to using HSA funds for qualified healthcare costs now and during retirement, you can also begin withdrawing funds at age 65 for daily expenses. You do have to pay taxes on these withdrawals, but with an HSA, you have another tax-advantaged way to build wealth for the future.
Didn’t Use It? You Won’t Lose It. The HSA doesn’t require you to spend the money in the year in which you save it. While a Flexible Spending Account (FSA) is a use-it-or-lose-it proposition, the money in your HSA rolls over year to year, allowing it to grow over time without you having to sweat any deadlines.
It Travels Well. Your HSA is always yours. If you change jobs, you can take your account with you. It’s even possible to set up an HSA without involving your employer. If this benefit isn’t available at your next job, you can roll your old HSA into one you set up on your own.
Variety of Qualified Expenses. It’s possible to use your tax-advantaged dollars for a number of expenses when you have an HSA. Qualified medical expenses can include dental and vision costs, such as exams and X-rays. You can also use the money for surprising items like sunscreen. Check with your employer’s plan to see what items qualify.
Use for COBRA and Medicare Premiums. On top of paying your out-of-pocket costs, you can also use HSA dollars to cover COBRA and Medicare premiums. If you’re between jobs and using COBRA, your HSA can help make it more affordable. While you can’t keep putting money into your HSA once you enroll in Medicare, you can use your HSA to pay those premiums.
Catch-Up Capability. The HSA comes with the ability to make catch-up contributions once you reach age 55. So, if you want to put a little extra into the account, it’s possible.
Time on Your Side. There’s no deadline to reimburse yourself for qualified expenses. You can use your HSA to pay for last year’s medical bills. Or you can even let your account grow over time and reimburse yourself later. Just make sure to save all your receipts.
Cover LTC Expenses. You can also let your HSA grow and use it later for long-term care. Since Medicare won’t cover long-term care, and Medicaid only applies when you have a low income and few assets, your HSA can help fill this gap.
Others Can Contribute. Finally, others can contribute to your HSA, helping it grow. Your employer can contribute and the money is immediately vested as yours. This matching contribution is free money that grows over time. Even family members can contribute on your behalf, so long as they meet certain qualifications.
Your HSA comes with a plethora of benefits. Contact your WellCents advisor to find out if an HSA might be the medical-expense and retirement-planning solution that you’re looking for.