Health Saving Accounts or HSAs are often overlooked as a long-term planning vehicle. However, the benefits are powerful. After all, who wouldn’t want to pay for health care expenses with tax-free money?
When money is added to the HSA directly from your paycheck, it is done before taxes (State and Federal) are calculated. You can also fund an HSA yourself and take a deduction when filing your taxes. A single person can sock away $3,850, and a family as much as $7,750. If you are age 50 or over, you can save an additional $1,000.
These tax-saving vehicles are generally offered in conjunction with employer plans but can be purchased individually. The catch is you must have a health insurance policy with a high deductible – $1,500 for a single person and $3,000 for a family.
Luckily, there are no income limits, and you can fund an HSA while also contributing to your 401(k), IRA, or other retirement plans. There is no use it or lose it tied to an HSA, and because it is portable, you can take the account with you when you change jobs or retire. This is unlike a Flexible Savings Account that is tied to your employer and must be depleted each year.
You can use the money in your HSA at any time to pay for qualified expenses that are not covered by your medical insurance. Still, if you can fund some of those costs from personal cash flow now, you can let your HSA grow to provide health benefits during retirement.
You can add money to an HSA until you enroll in Medicare. Then you can use the money to pay for things Medicare doesn’t cover, as well as monthly premiums for Medicare Part B and Part D and Medicare Advantage plans.
Another use for the HSA is funding your long-term care policy. A 60-year-old can withdraw up to $1,790, tax-free, to pay long-term-care insurance premiums. That’s a significant benefit as long-term care premiums tend to increase over time as you age.
Many HSAs allow you to invest the money in your account. This is especially advantageous for someone who is still working and not planning to use the money in the next several years, allowing you to benefit from potential long-term market growth. If you’re interested in seeing how your HSA stacks up, visit HSASearch.com to compare fees and investment options.
If you did not fully fund your HSA last year, there is still time. You can fund the account up to the tax filing deadline. Don’t let this opportunity pass you by. You will thank yourself in the future.
