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:
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healthy well into retirement, at age 65, the money in an HSA can be used to help pay Medicare premiums tax-free or be withdrawn as a taxable distribution for any non-medical purpose, similar to an IRA distribution.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.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
-
Stock Market Today: Nasdaq Soars Ahead of Tesla Earnings
The EV stock rose nearly 2% ahead of its highly anticipated Q1 earnings report, due after tonight's close.
By Karee Venema Published
-
GM Stock Accelerates After Earnings Beat
General Motors beat expectations for the first quarter and raised its outlook for the year. Here's what you need to know.
By Joey Solitro Published
-
Four Tips to Make Your Sales Presentation a Winner
Being prepared and not being boring can go a long way toward persuading a potential customer to buy into what you’re offering.
By H. Dennis Beaver, Esq. Published
-
Pros and Cons of Waiting Until 70 to Claim Social Security
Waiting until 70 to file for Social Security benefits comes with a higher check, but there could be financial consequences to consider for you and your family.
By Patrick M. Simasko, J.D. Published
-
Now Could Be Time for Private Investors to Make Their Mark
The venture capital crunch may be easing, but it isn't over yet. That means there could be direct investment opportunities for private deal investors.
By Thomas Ruggie, ChFC®, CFP® Published
-
How to Stop Boredom From Ruining Your Happy Retirement
Retirees who explore new interests and have an active social life are more likely to find joy — and even greatness — in the newfound freedom of retirement.
By Richard P. Himmer, PhD Published
-
The Life-or-Death Answers We Owe Our Loved Ones
How our life ends isn’t always up to us, but that question too often must be answered by loved ones and health care workers who don’t know what we would want.
By Joel Theisen, RN Published
-
Hot Tips for Home Buyers and Sellers Right Now
Real estate looks to be especially hopping this spring, thanks to pent-up demand and buyers adjusting to higher mortgage rates. Here’s how you can prepare.
By Pam Krueger Published
-
Is 100 the New 70?
Eating well, exercising, getting plenty of sleep and managing chronic stress can help make you a SuperAger. Funding that long life requires longevity literacy.
By Phil Wright, Certified Fund Specialist Published
-
Nine Lessons to Be Learned From the Hilton Family Trust Contest
Disclaimers, good communication, post-marital agreements and more could help avoid conflict in a family after the owners of a wealthy estate pass away.
By John M. Goralka Published