retirement

A Healthy Way to Increase Your Retirement Savings: HSAs

If you don't like paying taxes, health savings accounts could be a way to save for your health costs… and for retirement, too.

Opening a health savings account (HSA) offers a triple tax advantage. The catch is they are not available to everyone. To qualify you must be in a high-deductible health insurance plan (HDHP), you can't be enrolled in Medicare, and you can't be participating in another health insurance plan. Unlike an IRA contribution you do not have to have at least one spouse with earned income to qualify.

In addition, the HDHP must have minimum deductibles ($1,300 for an individual and $2,600 for a family for 2017) and maximum out-of-pocket costs ($6,550 for an individual and $13,100 for a family for 2017). If you are enrolled in a plan that meets these requirements, then you may be able to fatten up your retirement savings with an HSA.

HSAs offer these three potent tax advantages:

  1. Contributions are tax-deductible.
  2. Any interest and earnings grow tax-deferred.
  3. Distributions are tax-free when used for qualified medical expenses.

These accounts were created to help people in HDHPs pay for current medical expenses, but the money saved in HSAs can also be used for health care or other expenses in retirement.

Unlike flexible spending accounts (FSAs), there is no "use it or lose it" provision. Any money left in an HSA at the end of the year belongs to the account owner and remains in the account, growing tax-deferred, until it is distributed.

An individual can contribute up to $3,400 to an HSA in 2017, and a family can contribute up to $6,750. Also, if you're 55 or older, you can make a catch-up contribution and save an additional $1,000 in your HSA each year. The money in your HSA is yours if you change employers. Most HSAs offer investment options, giving you the opportunity to grow your savings tax-deferred over a long period of time, if you don't use the money for medical expenses.

Even if you stay healthy well into retirement, at age 65, the money in an HSA can be used to help pay Medicare premiums tax-free or be withdrawn as a taxable distribution for any non-medical purpose, similar to an IRA distribution.

Saving in an HSA gives participants in HDHPs opportunities to set aside pre-tax dollars, grow any earnings tax-deferred, and pay no taxes on distributions, as long as they're used for qualified medical expenses. It's a win-win-win opportunity.

So, if you're already saving for the future in an IRA, 401(k), or another qualified retirement plan—and you have the opportunity to enroll in an HDHP and open an HSA—you may want to consider it.

About the Author

Mike Piershale, ChFC

President, Piershale Financial Group

Mike Piershale, ChFC, is president of Piershale Financial Group in Barrington, Illinois. He works directly with clients on retirement and estate planning, portfolio management and insurance needs.

Most Popular

Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs
Coronavirus and Your Money

Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs

People have lots of questions about the new $3,000 or $3,600 child tax credit and the advance payments that the IRS will send to most families in 2021…
May 4, 2021
Are You Still Chasing the Almighty Dollar, Even Though You Have Plenty to Retire?
retirement

Are You Still Chasing the Almighty Dollar, Even Though You Have Plenty to Retire?

In our experience, many have saved enough money to retire comfortably. Yet too many worry about their money running out and want more. Maybe it’s tim…
May 6, 2021
9 Tax Deadlines for May 17 (It's Not Just the Due Date for Your Tax Return)
tax deadline

9 Tax Deadlines for May 17 (It's Not Just the Due Date for Your Tax Return)

Between due dates for extension requests, IRA or HSA contributions, and other deadlines, there's more to do by May 17 than just filing your federal in…
May 4, 2021

Recommended

33 States with No Estate Taxes or Inheritance Taxes
retirement

33 States with No Estate Taxes or Inheritance Taxes

Even with the federal exemption from death taxes raised, retirees should pay more attention to estate taxes and inheritance taxes levied by states.
May 6, 2021
Taxes, Taxes and More Taxes
tax planning

Taxes, Taxes and More Taxes

In light of the recent proposals by President Biden and Sens. Bernie Sanders and Chris Van Hollen, here’s what could be coming and some ideas on how t…
May 4, 2021
Why Today’s Retirees Need to Pursue Tax-Minimization Strategies
tax planning

Why Today’s Retirees Need to Pursue Tax-Minimization Strategies

IRAs are the name of the game for today’s retirees. While they come with helpful tax breaks for savers, pulling money out in retirement comes with maj…
May 4, 2021
Saver's Credit: A Retirement Tax Break for the Middle Class
Tax Breaks

Saver's Credit: A Retirement Tax Break for the Middle Class

Your retirement contributions could be the key to a lower tax bill.
May 3, 2021