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healthy well into retirement, at age 65, the money in an HSA can be used to help pay Medicare premiums tax-free or be withdrawn as a taxable distribution for any non-medical purpose, similar to an IRA distribution.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

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 12 Best Consumer Discretionary Stocks to Buy for 2022
stocks to buy

The 12 Best Consumer Discretionary Stocks to Buy for 2022

Consumer discretionary stocks may be among 2022's most challenging places to invest in. But these picks could overcome several sector headwinds.
January 4, 2022
How to Know When You Can Retire
retirement

How to Know When You Can Retire

You’ve scrimped and saved, but are you really ready to retire? Here are some helpful calculations that could help you decide whether you can actually …
January 5, 2022

Recommended

Make a Plan for Your Parents' Care
Caregiving

Make a Plan for Your Parents' Care

The ideal time to begin talking with your parents is before they need care.
January 24, 2022
The 4 Phases of Retirement
retirement

The 4 Phases of Retirement

Retirement means more than no longer working 9 to 5. There are four phases of retirement, and you should be prepared for each one.
January 24, 2022
8 Facts You Need to Know About Stock Market Corrections
Markets

8 Facts You Need to Know About Stock Market Corrections

Scary as they are, drawdowns are a normal part of the investing process. Having a financial plan in place and sticking to it is every investor's best …
January 23, 2022
22 Best Retirement Stocks for an Income-Rich 2022
dividend stocks

22 Best Retirement Stocks for an Income-Rich 2022

Ideally, your retirement stocks will help you generate a sizable and reliable income stream. These 22 dividend payers make the grade.
January 21, 2022