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:
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
- Contributions are tax-deductible.
- Any interest and earnings grow tax-deferred.
- 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.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Stock Market Today: Dow Adds 654 Points as 3M Stock Explodes Higher
It was a risk-on day for stocks thanks to an upbeat inflation reading and impressive earnings from 3M and Deckers.
By Karee Venema Published
-
3M Leads Dow Stocks After Massive Earnings Beat
3M stock is headed toward its best day ever after the industrial conglomerate's impressive earnings report. Here's what you need to know.
By Joey Solitro Published
-
Want to Earn $1 Million More Over Your Lifetime? Do This
It's simple: Go to college or a trade school. It's an investment that will pay huge dividends for the rest of your life. And the benefits go far beyond money.
By Brian Evans, CPA, PFS Published
-
What Impact Does Politics Have on Insurance?
Some governors choose their state's insurance commissioner, while other states elect theirs, and that person has power over insurance issues, including rates.
By Karl Susman, CPCU, LUTCF, CIC, CSFP, CFS, CPIA, AAI-M, PLCS Published
-
If You're the Millionaire Next Door, You May Be a Terrible Spender
Good job on all that great saving. Now you need to start spending some of that hard-earned retirement savings on the things you love.
By Joe F. Schmitz Jr., CFP®, ChFC® Published
-
Who Will Be the Beneficiaries of Your Wealth?
Deciding who you want to inherit your wealth, as well as when and how, is a crucial first step in estate planning. Here are the four beneficiaries to keep in mind.
By Adam Frank Published
-
Confused by Annuities? Making Sense of the Different Types
Many investors aren't sure if annuities are a good option for meeting financial goals. Let's look at the different categories, along with their pros and cons.
By Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC® Published
-
Talkin' 'Bout My Generational Wealth: Baby Boomers
With retirement, each generation has different priorities and challenges. For Baby Boomers, it's a matter of ready or not, here it comes.
By Alvina Lo Published
-
How to Avoid a Big Hassle if Your Financed Car Gets Wrecked
How an insurance check is made out for repairs can cause a world of problems if the lienholder is left out.
By H. Dennis Beaver, Esq. Published
-
Estate Planning Strategies to Consider as Election Nears
Are big changes in tax laws coming soon? Not likely, but you might want to take advantage of higher estate and gift tax exemptions well before the end of 2025.
By David Handler, J.D. Published