Do you have a health savings account, also known as an HSA? You’re not alone. According to a study from America’s Health Insurance Plans (AHIP), nearly 20 million Americans are enrolled in an HSA.1
An HSA can be a valuable tool to help you pay for out-of-pocket medical costs such as deductibles, copays and more. They can be especially helpful for those emergency costs that you haven’t included in your regular budget.
Many Americans use their HSA to pay for short-term, unexpected costs, like injuries or unexpected prescriptions. There’s nothing wrong with using an HSA as a short-term reserve account for health care costs. In many ways, that’s why HSAs exist.
However, you could also use your HSA as a retirement account, much like your 401(k) or IRA. Consider allocating a portion of your HSA funds as long-term savings to fund your health care needs after you retire. Below are three reasons why your HSA could serve you well in retirement:
Medicare won’t cover all your medical expenses.
Most retirees rely on some form of Medicare after turning 65. However, Medicare doesn’t cover all health care costs. It pays for only a portion of most medical expenses, and many other costs aren’t covered at all. In fact, Fidelity estimates that the average 65-year-old retired couple will pay $260,000 on out-of-pocket health care expenses over the course of their retirement.2
Without a funding strategy in place, you may be forced to cover those costs with retirement savings from your 401(k), IRA or other assets. That could limit your ability to live the kind of lifestyle you want in retirement.
Instead, use your HSA as a long-term savings vehicle to pay for those future health care costs. You can then maintain your retirement assets to pay for more enjoyable expenses, like travel, hobbies or spoiling your grandchildren.
An HSA can be used to save money over the long term.
Many people assume they must use their HSA funds in a given year. The truth is your HSA assets stay in the account as long as you keep them there, even for years or decades. Also, your HSA isn’t tied to your job. Even if you change jobs or leave the workforce, you can keep your HSA.
Additionally, growth in the HSA is tax-deferred. That means you don’t pay taxes on your HSA inside the account. That tax deferral may allow you to grow your funds faster than you would in a taxable account. Tax deferral may make an HSA a powerful long-term growth vehicle.
An HSA can provide tax-free income for medical costs.
Health care costs will likely be a major expense in your retirement, but so too will taxes. You may pay taxes on everything from Social Security benefits and pension payouts to IRA distributions and more. You should consider any opportunity to reduce your tax burden.
An HSA offers tax-deferred growth, but it also allows for tax-free distributions as long as the funds are used for qualified medical expenses. The definition of “qualified” is fairly broad, so nearly any medical cost will likely count. That means you can grow your money tax-deferred and then withdraw it tax-free to pay for your health care expenses.
Ready to use an HSA to fund your health care costs in retirement? Let’s talk about it. Contact us today at Baacke Insurance Services. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.
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