Are you eligible for a Health Savings Account (HSA)? To be eligible to contribute to an HSA, you must be enrolled in an HSA-qualified high-deductible health plan and not be enrolled in Medicare.
HSAs are an excellent option to pay for health care costs in retirement. While one can use 401(k) plans and individual retirement accounts for medical costs, HSAs offer more tax savings than both traditional or Roth retirement accounts:
· Your contributions to an HSA help lower your taxable income today.
· Growth in the HSA is tax-free.
· Withdrawals are tax-free if used for eligible healthcare expenses.
Eligible medical expenses include Medicare Part B premiums, which are almost $4,000 for a married couple (with income of up to $194,000 for 2023). Also eligible are deductibles, copays and vision, dental and hearing expenses, and even long-term care expenses.
HSA contribution limits are adjusted for inflation each year, and typically the bump is $100 to $200 a year if at all. But because of high inflation, the family maximum limit went up even more for 2024. The IRS recently announced the largest ever increase in the amount you can set aside in an HSA each year. Next year the maximum HSA contribution will be:
· $8,300 for a family (a $550 increase).
· $4,150 for an individual (a $300 increase).
· Participants aged 55 and older can contribute an extra $1,000.
HSA account holders can get an immediate tax benefit - even from putting money into an HSA and pulling it out immediately to pay for healthcare expenses. Or you can invest the money before spending it. Most HSAs offer investment options in mutual funds or ETFs, usually once the basic bank deposit account reaches a certain threshold, often $1,000.
HSA funds are available even after you leave your employer. This means if you change jobs, do not forget that you have an HSA with your former employer which is yours to keep. Check if your new employer’s HSA allows you to transfer the balance into your new HSA, or even pick a new HSA provider, though this is not always easy.
As fewer employers offer retiree healthcare benefits, employees should determine if they are eligible for an HSA. If so, they can consider opening and funding their HSA every year. According to the Employee Benefit Research Institute (EBRI), a couple retiring this year and enrolled in a Medigap plan would need $318,000 to have a 90% chance of covering medical expenses in retirement. Check with your employer to see if selecting a health plan with an HSA makes sense for you and your family.
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Janet Rhodes Friedman, CFP®, CDFA®, MBA
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.