Health savings accounts (HSAs) offer a rare triple tax advantage: Contributions are tax-deductible, investments grow tax-free and withdrawals for qualified medical expenses are tax-free.

Those tax benefits come with an important responsibility, though. If you take tax-free withdrawals from your HSA, you should be able to document that the money was used for qualified medical expenses.

While IRS audits involving HSAs are relatively uncommon, they do happen. And when they do, many account holders struggle to locate receipts or remember which expenses they reimbursed themselves for earlier. Creating a simple system to save and organize HSA receipts can help protect your tax benefits and make it much easier to respond if questions ever arise.

What records HSA account holders should keep

Many people don't realize that the IRS requires you to keep records supporting HSA withdrawals. The following documents can help substantiate qualified medical expenses and reimbursements.

• Itemized receipts: Receipts for qualifying medical expenses need to include details specifying the type of item or service purchased, the date, the cost and any taxes or discounts.
• Proof of payment: Keep proof of payment for each purchase, such as a credit card statement or a canceled check. To stay organized, pair the proof of payment with the corresponding itemized receipt.
• Explanation of benefits (EOB): Your insurance provider’s EOB details the services provided and the amount that insurance covers. It also outlines what you may owe and helps prove that a service qualifies for HSA reimbursement.
• Detailed notes: Take notes on who each expense was for and whether your health insurance reimbursed you for the expense.

The easiest ways to organize HSA receipts

Keeping your HSA receipts organized can make tax time easier and help you respond quickly if you're ever audited. Whether you prefer digital storage, spreadsheets or dedicated tracking tools, several methods can help you keep your records in order.

Cloud folders: Storing receipts digitally in the cloud can reduce clutter and make records easier to retrieve if you need them later. Scan receipts and organize them in folders by year, using clear file names so specific expenses are easy to find. Popular cloud storage services, including Google Drive, Microsoft OneDrive and Dropbox, can make it easy to access records from multiple devices and create backups.

Budgeting apps: Many budgeting apps can also serve as receipt-storage tools. Apps like Monarch, YNAB and Quicken allow users to attach receipts, notes and other documents to transactions. Storing receipts alongside the corresponding expense can make HSA recordkeeping easier and help ensure supporting documentation is readily available if you choose to reimburse yourself years later.

Spreadsheet tracking systems: A spreadsheet can help you track key details such as the expense type, date and amount paid. You can create your own tracker or start with a template from platforms like Canva. Tools such as Google Sheets work well if you don't have Microsoft Excel, and you can access them from multiple devices. Just remember that you'll still need a separate system for storing copies of receipts.

Apps designed for HSA management: Apps designed for HSA management can help you store receipts, track expenses and identify HSA-eligible purchases. Popular options include Reimbursable, which is available for Apple devices, and TrackHSA.

Save PDFs from providers: Many healthcare providers make receipts and statements available online. Downloading and saving PDFs directly from provider portals can help you maintain a paperless recordkeeping system.

Use HSA provider tools: Some HSA administrators offer receipt storage, expense tracking or mobile apps as part of their accounts. These built-in tools can be a convenient way to keep your records organized in one place. If you change jobs, transfer your HSA or switch providers, make sure you know how to download and retain your records so you don't lose access to important documentation.

Keep security in mind when using digital tools to store and track receipts. Look for tools that allow you to create backups, and be sure that you create a secure password and keep it safe to protect your data and privacy.

Why some people delay HSA reimbursements for years

HSAs allow you to delay reimbursement for qualified medical expenses for years, provided you keep accurate records. Some account holders intentionally pay medical expenses out of pocket and leave their HSA funds invested, giving the account more time to grow tax-free.

While this strategy can be appealing, it can also backfire. If you lose receipts or other documentation, you may not be able to prove those expenses were eligible for reimbursement years later. If you're considering delayed reimbursement, it's important to create a reliable system for storing and tracking receipts and other supporting documents.

Common HSA paperwork mistakes that can create tax problems

HSA holders sometimes make paperwork mistakes that can create tax issues, especially during an audit. If you lose receipts, you may not be able to prove or claim HSA reimbursement for that expense.

When you use your HSA, be careful about double-dipping with insurance or tax deductions. If an expense is covered by or reimbursed by insurance, you can’t claim it as an HSA reimbursement. And if an expense is reimbursed by your HSA, you can’t claim it as a medical tax deduction.

Reimbursing nonqualified expenses with your HSA is another potential issue. The IRS provides specific guidance about what qualifies as a qualified medical expense, which includes expenses medically necessary for the "diagnosis, cure, mitigation, treatment or prevention of disease." Cosmetic procedures, spa treatments, unprescribed massages and more are nonqualified expenses.

Don’t forget to document over-the-counter purchases or medical necessity letters, too. This documentation is key to proving that your expenses qualified for HSA reimbursement, so gather these documents at the time of the expense and keep them organized and safe.

A simple annual HSA cleanup checklist

At the end of each year and before tax season, take some time and clean up your HSA documentation. Doing so will help keep you organized and will make filing taxes and navigating a potential audit much easier.

The following steps can help ensure you have your HSA receipts and documents organized:

• Download annual statements
• Reconcile reimbursements
• Back up receipts digitally
• Review qualified expense lists
• Store records with tax documents

Your HSA is only as good as your records

Keeping good records can help protect your HSA tax benefits and give you peace of mind. By creating a simple system now, you'll make it easier to track expenses, document reimbursements and stay prepared if the IRS ever asks questions.

The best recordkeeping system is one you'll use consistently. Whether you prefer cloud storage, spreadsheets or an expense-tracking app, a little organization today can help safeguard your tax savings for years to come.

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Question: Our new health plan is HSA-compatible. I know these accounts are great to have in retirement, but it seems like such a hassle. We are not the most organized couple, and I worry we won't use it all. Is it worth it?

Answer: High-deductible health insurance plans can be wonderful for people who are generally healthy and don't tend to see the doctor often. For people who tend to have frequent medical needs, they can be expensive.

But there's a silver lining. If you're enrolled in a high-deductible health insurance plan, you might be eligible to contribute to a health savings account, or HSA. Many financial experts are quick to point out that HSAs are a great tool to have on hand for retirement.

That said, HSAs require good record-keeping. They also have strict rules. If you take a withdrawal for non-medical purposes, you'll face taxes plus a 20% penalty (though the penalty is waived once you turn 65).

You might be wondering if an HSA is worth the hassle. Here's why it might be, even for people who loathe paperwork.

HSAs offer tax breaks galore

The reason so many people use IRAs and 401(k)s to save for retirement is the tax benefits these accounts offer. Traditional IRAs and 401(k)s allow contributions to be made with pretax dollars. Roth IRAs and 401(k)s allow for tax-free gains and withdrawals.

But as Jeff Judge, CFP and managing partner at Chesapeake Financial Planners, likes to point out, with an HSA, you get all three.

"Contributions reduce taxable income, growth is tax-free, and qualified withdrawals are tax-free. No other account does all three," he says.

Judge also likes to point out that HSAs are far superior to flexible spending accounts (FSAs).

"FSAs cap your contributions lower, expire at year-end or close to it, and aren't portable when you leave your employer," he explains. "An HSA is yours permanently, the balance carries over indefinitely, and you can invest it once the balance clears your plan's threshold."

HSAs offer loads of flexibility

It's true that HSA savers must worry about penalties for non-medical withdrawals prior to age 65. But that aside, Judge says, these accounts are extremely flexible.

"You don't have to reimburse yourself in the year the expense occurred," he explains. "Reimbursements can be pulled years or decades later if the expense was qualified."

That's a big deal because HSAs grow tax-free. This means that if you incur a $1,000 medical expense now but can pay for it out of pocket, you can leave the money in your HSA and get reimbursed 20 years later, at which point that $1,000 is apt to be worth a lot more.

"I had a client who tracked medical receipts for 11 years in a simple folder on her computer, then pulled $23,000 in reimbursements tax-free in the year before retirement," Judge says. "The IRS doesn't require you to keep receipts in any particular format. They just need to be legible and show the date, provider and amount."

Judge also points out that after age 65, an HSA works like a traditional IRA for non-medical expenses, in that you pay ordinary income tax on withdrawals but no penalty. In other words, there's really no risk of ending up with "too large" an HSA balance.

As Judge points out, an average couple can expect to pay approximately $345,000 (after tax) to cover healthcare costs in retirement, according to Fidelity's latest projections. Having a funded, tax-free bucket specifically for those costs is crucial.

Do HSAs hold up to inflation?

Of course, parking cash in an HSA for many years might seem like a bad idea, given that inflation could erode its purchasing power. Judge says that's a legitimate concern.

"If the inflation-adjusted return on your HSA investments is negative, yes, the tax benefit can erode," he says.

The key, therefore, is to invest your HSA strategically rather than keep your unused funds in cash.

"HSA funds invested in a diversified equity portfolio have historically outpaced medical cost inflation over long horizons," says Judge. "The mistake isn't treating the HSA as a long-term vehicle. The mistake is leaving the money in cash inside the account instead of investing it."

Try not to treat your HSA as a checking account

Another HSA mistake you might make? Dipping in regularly when you have other options for covering medical expenses, says George Dimov, CPA and founder of Dimov Tax.

Dimov says that if you constantly take HSA withdrawals to pay for medical bills, it won't function any differently than an FSA. That greatly erodes the benefit.

Tracking health care expenses can be a bit of a burden. But Dimov says it's worth doing.

"The HSA is not about convenience," he insists. "It is actually about doing the opposite of convenience. The whole strategy is paying bills out of pocket when you can afford to and letting the HSA grow."

That said, developing an efficient tracking system could make the process easier. That could mean scanning receipts and storing records digitally or using an app. It pays to spend some time developing a system, making sure it's backed up, and adding it to your digital estate plan.

Once you get into the habit of tracking HSA expenses, it might become less of a pain. That way, you get to reap the benefits of tax-free growth on your money while legally shielding income from the IRS along the way.

Read More

• 10 Myths About Health Savings Accounts
• How to Use Your Health Savings Account in Retirement
• What I Didn't Know About Health Care FSAs Could Have Cost Me: Don't Make the Mistake I Almost Made

IRS tax season is upon us, but if the first time you turn your attention toward taxes every year is when you're gathering documents to file, the chances are you're missing out on some loopholes that can help lower your tax obligation.

These tips can help you (legally) reduce what you owe every year.

1. Supercharge your retirement savings with the mega backdoor Roth

Roth IRAs have both income and contribution limits set by the IRS, making direct contributions to Roth IRAs generally unavailable to some high earners.

One workaround for those high earners is the mega backdoor Roth strategy in which after-tax contributions are made to a 401(k) and then converted to a Roth 401(k) or Roth IRA.

Only employer plans allowing after-tax contributions are eligible for this strategy. This option might be worth exploring with your financial adviser if your income is too high to contribute to a Roth IRA, allowing you to increase the tax-free savings in your retirement accounts.

2. Turn your HSA into a stealth retirement account

Health savings accounts (HSAs) are designed as tax-advantaged accounts to hold funds for medical expenses, but a loophole allows you to stealthily use your HSA as a retirement account of sorts.

Since HSA funds don't expire every year, the funds can continue to grow tax-free. And since contributions to HSA accounts can be tax deductible, your annual taxable income can be reduced by your HSA contributions.

Withdrawals aren't taxed as income as long as the funds are used for medical expenses (those age 65 or older can use the funds for non-medical expenses without penalty but with the funds taxed as ordinary income).

HSAs don't have required minimum distributions, making them incredibly flexible in retirement.

Of course, HSAs can also be valuable as a way for those with high-deductible health insurance plans to pay their medical expenses, but when used as a stealth retirement account by those who qualify for these accounts, HSAs can nicely augment additional retirement funds.

3. The charitable 'bunching' strategy that doubles your deduction

Your generosity to the causes you care about can help lower your tax obligation, but if you're taking the standard deduction every year, there's a chance you're missing out on the opportunity to maximize your deductions.

A donor-advised fund (DAF) allows you to contribute assets (such as cash, stock and real estate) to an established, managed fund. Since the donation goes into the fund, there is some flexibility as to when you can take the deduction.

Even if the assets aren't allocated to a charity immediately, you can still take the deduction right away.

Since DAFs allow flexibility in what you can contribute, the potential for lowering capital gains tax by donating appreciated assets shouldn't be ignored.

Donating appreciated stocks directly into a DAF (instead of selling the stock and donating the proceeds) maximizes your impact while potentially lowering the tax you owe.

4. Family payroll power: Pay your kids and cut your taxes

Hiring your children to work for your business can make a lot of sense from the perspective of positioning them to live productive lives (or perhaps even someday become your successors), but it also makes sense when it comes to reducing your tax obligation.

The wages you pay your children for their work can be deductible as a business expense and, depending on their age and income, might not be taxable to them.

The trick here is that your children must actually work for you (you can't just add them to the payroll), the pay must be appropriate for their role, and you must keep records of their employment just as you would with any other employee.

Consider maximizing the benefits by having your children contribute to a Roth IRA with their wages, making the arrangement a win/win for you and them.

5. Harvest losses to offset gains (even in good years)

Contrary to what you might have heard, tax-loss harvesting isn't just for down markets. Instead, it's a potentially effective way to reduce what you owe in taxes while also balancing your portfolio.

Losses can offset capital gains, then up to a $3,000 loss can be claimed on your taxes against your ordinary income annually. Any remaining loss can be carried over into subsequent years.

You're not allowed to turn around and repurchase the stocks you sold at a loss (or stocks that are "substantially identical") within 30 days of the sale if you're claiming the loss.

But tax-loss harvesting is one of the simplest legal tools to fine-tune your taxable income and keep your portfolio efficient.

Like any of the other loopholes mentioned above, tax-loss harvesting is a strategy that should be discussed with your financial adviser to ensure it's something for which you qualify and that it's done correctly with proper documentation throughout the process.

Any strategy that reduces your tax bill can theoretically invite additional scrutiny from the IRS.

These strategies are legal methods for reducing your tax bill — they're not covert schemes that will automatically raise red flags and trigger an audit. Use these loopholes correctly and you may just reduce the amount of money you owe to the IRS.

I often speak with the families I serve about seeking joy. What brings about joy during tax season? A lower tax bill, of course.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal, and/or tax advice. Investment advisory services offered through CWM, LLC, an SEC Registered Investment Advisor. Mitlin Financial is located at 140 Adams Avenue Ste. B-12 Hauppauge, NY 11788

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

A Health Savings Account (HSA) is often viewed as a tool for current medical expenses, but its "triple-tax advantage" makes it one of the most powerful and flexible retirement savings vehicles available. By strategically saving and investing your HSA funds during your working years, you can unlock the full potential of these accounts to cover health care costs and even supplement your income in retirement.

After age 65, the account can even serve as a supplemental income source. At that point, the 20% penalty for non-qualified medical withdrawals disappears, leaving the funds subject only to standard income tax — similar to a traditional IRA or 401(k).

The triple-tax advantage

The core strength of the HSA lies in its three layers of tax benefits:

• Tax-deductible contributions: Money you contribute goes in tax-free or is tax-deductible if you contribute post-tax
• Tax-free growth: Your investments and interest grow tax-free
• Tax-free withdrawals: Withdrawals are tax-free if used for qualified medical expenses at any age

When you reach retirement, the third benefit becomes even more versatile.

What Can You Spend HSA Funds On in Retirement?

Health care is often the single largest expense for retirees. Your HSA is perfectly designed to meet this need in the most tax-efficient way possible. The ability to reimburse yourself for Medicare premiums, coinsurance, co-payments and deductibles can put a significant sum back into your pocket.

At any age, money withdrawn for qualified medical expenses is completely tax-free and penalty-free. In retirement, this can include:

Covering long-term care costs

Long-term care expenses often go unplanned, although 56% of people will need long-term care services within their lifetime. The Life Insurance Marketing and Research Association (LIMRA) estimates that only 3% of Americans over 50 have any long-term coverage (LTC). As noted, you can use HSA funds to pay LTC insurance premiums for yourself or your spouse; a portion of that payment is tax-free as a qualified medical expense.

The amount you can withdraw annually that will be treated as qualified medical expenses depends on your age. It is equal to the IRS tax deductible limits for LTC insurance and is indexed for inflation annually.

Limits on HSA reimbursement for long-term care insurance premiums:

Age attained before close of year/2026 annual limit
40 or less $500
More than 40 but not more than 50 $930
More than 50 but not more than 60 $1,860
More than 60 but not more than 70 $4,960
More than 70 $6,200

Pay out-of-pocket now, reimburse yourself later

One strategy to stretch your HSA is to pay current medical expenses out-of-pocket with non-HSA funds and keep the receipts for reimbursement at a later date.

Because your HSA funds never expire, you can let the balance grow and invest tax-free for decades. Then, in retirement, you can reimburse yourself for those previous, qualified expenses — potentially pulling out a large, tax-free lump sum that can be used for any purpose. Be sure to keep meticulous records of all receipts.

Remember that any expenses incurred before you established your HSA aren’t considered qualified medical expenses and aren't eligible for reimbursement.

An important difference between HSAs and FSAs: Unlike FSA accounts, there is no time limit to request HSA reimbursements. You can pay for qualified medical expenses out of pocket and reimburse yourself days or even decades later. You might not need to submit receipts to your HSA provider to get reimbursed, but keep those receipts for tax purposes.

Favorable rule changes when you reach 65

Once you reach age 65, your HSA essentially transforms into an even more flexible Traditional IRA or 401(k). At this age, you can take penalty-free withdrawals for any reason.

• Before age 65: Withdrawals for non-medical expenses are taxed as ordinary income and subject to a 20% penalty.
• At age 65 and older: The 20% penalty disappears. Any withdrawal used for non-medical expenses is treated just like a withdrawal from a traditional 401(k) or IRA: it is taxed as ordinary income, but is penalty-free.

HSA "don’ts"

1. Don't contribute to your HSA if you're within six months of applying for Medicare

This can be a costly mistake. If you're 65 or older, your Part A coverage will start up to 6 months back from the date you sign up for Medicare or apply for benefits from Social Security. You're not eligible to make contributions to your HSA after you have Medicare. If your Medicare Part A coverage overlaps with when you made contributions, you may have to pay a tax penalty.

2. Don’t use your HSA for Medigap premiums

As Medigap premiums aren’t considered qualified expenses for HSA purposes, they will be subject to income taxes. As you get older, chances are good you’ll have other medical expenses that would be a better use of those funds, because those expenses allow you to take advantage of the HSA's most powerful advantage: tax-free withdrawals to pay medical expenses. And those funds will continue to grow when they remain in the account for use at a later time.

3. Avoid non-qualified withdrawals by obtaining medical necessity documentation

For any non-traditional expense you intend to treat as a qualified medical expense, ensure you have a letter of medical necessity from your provider. For instance, expenses for modifications to your home or vehicle due to a disability or physical limitation.

And keep all your receipts and invoices, especially for any lodging or travel expenses. This documentation can be essential if there are any questions about a claim.

Important considerations for retirees

• Stop contributing when enrolling in Medicare- A critical rule to remember: You cannot contribute to an HSA once you enroll in Medicare (Part A and/or Part B). And, because anyone receiving Social Security is automatically enrolled in Medicare Part A and Part B when they turn 65, it's essential to plan your final contributions carefully. You should stop contributing to your HSA six months before your intended Medicare enrollment date to avoid potential tax penalties.
• No required minimum distributions (RMDs)- Unlike traditional retirement accounts, 401(k)s, or traditional IRAs, an HSA is not subject to required minimum distributions (RMDs) at age 73. This allows your money to continue to grow tax-free for your entire life, making it an excellent asset for long-term health planning and estate purposes.
• The spouse and beneficiary factor- If your spouse is your beneficiary, the HSA can simply transfer to them upon your death, and they will continue to enjoy the same tax advantages. If a non-spouse is named as the beneficiary, the account typically loses its HSA status and becomes taxable upon transfer.

HSAs offer unique benefits to retirees

The strategic use of an HSA in retirement is financial planning. By maximizing contributions, investing wisely, and carefully documenting your medical receipts, you can ensure that your HSA provides the ultimate financial security — tax-free money for medical expenses and penalty-free flexibility for all other needs after age 65.

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Open enrollment season is here, bringing with it the annual rush of decisions about health insurance and related benefits. For many, one option often rises above the rest: the Health Savings Account (HSA).

Why? Because of the HSAs’ so-called “triple tax advantage.” That includes pre-tax contributions, tax-free investment growth, and tax-free withdrawals for qualified medical expenses.

With such potentially significant tax advantages, opting in to an HSA might seem like an easy choice.

However, some situations may make an HSA less than ideal for you or your family, despite its tax benefits.​ Curious? Here’s more of what you need to know.

How do Health Savings Accounts work?

An HSA is a special savings account that allows you to pay for qualified medical expenses with pre-tax dollars. You can only open a health savings account if you’re enrolled in a high-deductible health plan (HDHP) — meaning you’ll pay more out of pocket before insurance kicks in.

You (and sometimes your employer) can deposit money into the account, and that money can be used tax-free for expenses like doctor visits, prescriptions, or even dental and vision care.

The balance rolls over from year to year, and you keep the account even if you change jobs or retire.

As mentioned, a main appeal is the triple tax advantage:

• HSA contributions are tax-deductible
• Growth is tax-free, and
• Withdrawals for eligible expenses are also not taxed.

However, while HSAs can be a powerful way to save on healthcare costs, they may not be the best fit for every health plan or budget. Here are some key reasons why.

‘Hidden costs’ of High-Deductible Health Plans

To qualify for an HSA, you have to have a high-deductible health plan (HDHP). That means trading lower monthly premiums for higher out-of-pocket costs. (Because HSAs pair with HDHPs, you’ll pay more out of pocket before insurance starts covering expenses.)

• If you don’t have enough saved yet, those upfront costs can be tough to manage.
• The high-deductible, higher-risk paradigm means you’ll need to cover more upfront costs before insurance kicks in, which can strain your cash flow if medical needs arise.
• You might not see enough savings to offset the higher deductible.

That structure can be challenging for people with chronic conditions, ongoing prescriptions, or families with ongoing medical needs, or those who expect high medical costs early in the year.

Studies from the National Bureau of Economic Research (NBER) note that while HSAs incentivize consumer-driven health spending, they also disproportionately affect chronically ill patients and lower-income individuals.

The Kaiser Family Foundation reports that "premiums for HSA-qualified health plans may be lower than for traditional insurance, but these plans shift more of the financial risk to individuals and families through higher deductibles."

Conversely, if you rarely have medical expenses, the potential deductions may not outweigh the higher deductible or plan limits.

And from a tax perspective, if you find yourself pulling from your HSA for regular health bills, you miss out on tax-free investment growth. As mentioned, for many, the compounding aspect is a large part of the HSA’s appeal.​

Frequent HSA withdrawals undercut long-term growth

Some people understandably end up using their HSA dollars every year just to cover doctor visits or medications. But each withdrawal means less money stays invested, which not only reduces future tax-free growth but can also undermine the “retirement account” aspect HSAs aspire to offer.

If you’re in that boat, the account can sometimes feel like more of a glorified checking account than a tax-optimized investment vehicle.​

Limited HSA contributions mean limited tax benefits

Much of the power of an HSA is realized when you can contribute a meaningful amount each year and, ideally, leave those funds invested for a significant period.

Note: The IRS sets annual contribution limits for these accounts.

Here are the 2025 and 2026 contribution limits for individuals and families, including the catch-up amount for those aged 55 and older:

HSA Contribution Limits

These limits apply to the total contributions from both individuals and employers combined. The catch-up contribution allows individuals 55 or older (not yet enrolled in Medicare) to contribute an additional $1,000 each year.

Still, if you can’t afford to contribute much because of, for example, tight household finances, other priorities, like debt repayment or just the higher out-of-pocket costs that come with a high-deductible health plan, can also effectively shrink the tax benefits of an HSA.

• That is because HSAs essentially reward those who can maximize contributions.
• The tax deduction for putting money in is only substantial if you’re actually making full or near-full contributions.

Higher earners, or those with substantial disposable income, can often reap significant tax benefits, while others may see less substantial tax breaks.

Other factors can undermine the “triple tax” HSA promise

Account fees and investment limits: Some providers require keeping a minimum cash balance or charge fees that can erode some of your gains, particularly if your HSA balance is low.​

As Kiplinger has reported, former Consumer Financial Protection Bureau (CFPB) director Rohit Chopra has said, "HSAs may appear beneficial due to tax advantages, but many consumers underestimate the hidden costs, including account fees, complexity, and the challenge of high deductibles that can hinder access to care."

Medicare eligibility and job changes: Even though the HSA remains yours even if you switch jobs, turning 65 or switching to a non-HDHP (including many employer plans) means you can’t make new HSA contributions to that account. That could hinder your future potential for tax-advantaged savings.​

Recordkeeping demands and early withdrawal penalties: Managing an HSA requires careful recordkeeping to document eligible medical expenses. Additionally, if funds are withdrawn for non-qualified purposes before age 65, the amount is taxed as ordinary income and subject to a 20% penalty. For those who may need easier access to their savings, this lack of flexibility can limit the practicality of the account’s “triple tax” advantage.

Preference for predictable costs. Some people would rather pay higher premiums each month in exchange for lower, more predictable costs when they need care. An HSA plan can feel risky if you want that stability.

Employer coverage advantages with other plan options. If your job offers another plan with low copays and strong employer coverage, that option might save you more overall than an HSA-linked plan.

Downsides of an HSA: Bottom line

An HSA can be a powerful tool, especially for those who can consistently contribute and let their savings compound over many years while covering high upfront medical costs out of pocket.

If that doesn’t fit your financial life or if frequent withdrawals, high expenses, or modest contributions are part of your reality, the tax perks of an HSA might seem minimal.

As open enrollment continues, it’s worth running the numbers on whether you’ll reap the tax benefits of an HSA will or if you’re better off (even if only temporarily) focusing on another health plan option.

Read More

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• What's the Standard Deduction for 2025 and 2026?
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I recently received a shock when I went to the dentist for my six-month checkup. Not because I had a mouthful of cavities or needed another root canal. (I floss!) The unpleasant surprise occurred when it came time to pay the bill. This was my first appointment since I retired and lost my employer-provided health insurance, and I was on the hook for the entire cost.

As I mentioned in an earlier column, I opted for original Medicare and a Medigap plan when I retired. I made this decision because with a Medicare Advantage plan, I would have been limited to using in-network doctors and other providers. Likewise, while many Medicare Advantage plans include dental care, the coverage is usually restricted to providers in their network.

In addition, Medicare Advantage plans often impose waiting periods of six months to two years before they pay for expensive procedures, such as crowns and dentures. Preventive care is usually covered immediately, but you'll typically face an annual cap on coverage — an average of $1,300, according to a 2021 survey by health-policy research organization KFF.

In my case, signing up for Medicare Advantage would have required me to switch to an in-network dentist to get coverage, something I'm reluctant to do because I've been a patient of the same practice for more than 20 years. I'm pretty sure I'm putting my dentist's children through college, but I still have most of my teeth, so I consider that a fair trade-off. (Due to bad youthful habits and some congenital issues, there are more bridges and canals in my mouth than there are in Venice).

Ways retirees can lower dental costs

For retirees like me, there are other ways to lower dental costs, although all of them have limitations. One option is a stand-alone dental insurance plan, which many major providers offer. Premiums range from $20 to $80 a month, depending on the services covered and annual caps.

But before you sign up for one of these plans, scrutinize the fine print. Most plans will cover only a portion of the cost of certain procedures, such as fillings and root canals, and limit annual payouts; in some cases, the cap is as low as $1,000. Some have waiting periods of 12 months or more before they'll cover some procedures.

And to use the coverage, you'll probably have to visit a dentist within the plan's network. When I plugged my zip code into the search engine for a well-known dental insurance plan, I discovered that there weren't any participating dentists within 30 miles of my home.

A discount plan is another possibility. These plans aren't insurance — they simply offer members a discount ranging from about 15% to 50%, depending on the dentist and procedure. If your dentist participates in one of these programs, or you don't mind switching to one who does, this could save you some money. I was offered access to a discount plan through my Medigap policy at no cost.

In other cases, participants may pay a membership fee. (You'll have to estimate whether your savings from the discount will surpass the fee.) For example, a dental practice in my neighborhood offers discounts of 20% to 30% for a one-time membership fee of $199.

Unfortunately, my dentist doesn't participate in one of these programs, either, so I'm planning to use money I accumulated in my health savings account to pay for my dental work. Although you can't contribute to an HSA after you enroll in Medicare, you can use the funds tax-free to pay for a variety of health-related out-of-pocket costs.

I'm also going to talk to my dentist about other ways to save money, such as spreading out X-rays and fluoride treatments. And I'll continue to floss. Now that I'm paying the entire tab, it's more important than ever.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Open enrollment is an important time for employees to review and select benefits and those decisions can have a lasting impact on your financial future.

According to the U.S. Bureau of Labor Statistics, the average employee benefits package accounts for 29.7% of total compensation for private industry workers and 38.4% of total compensation for state and local government workers.

But when the average employee has to choose from more than a dozen benefits, it is easy to become fatigued while working through the open enrollment process. The steps that follow will help keep you on track.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

1. Review your current benefits

Start by evaluating your existing benefits. Consider what worked well in the past year and what didn't.

Look at your health care usage, out-of-pocket costs and any changes in your circumstances — such as marriage, the birth of a child or new health needs — that may influence your choices. Try to judge how much the upcoming year's expenses may look like this year's.

A tool that may help is "start, stop, continue." Try to decide what benefits were missing this year that you would like to start in the new year, what benefits were not used that you might stop and what benefits were helpful that you want to continue.

This exercise can help you group your benefits by category.

2. Attend informational sessions and read materials

Keep an eye out for emails and other communications that offer enrollment support. Your employer offers these resources because they want you to get the most out of your benefits.

Use your human resource team to help you manage your decision-making. Consider talking to HR with your partner, if applicable, to help your family get the most out of your benefits.

3. Compare plans carefully

When selecting, compare plan premiums, deductibles, copayments, coverage networks and prescription drug benefits. Use available online tools or calculators to estimate your annual costs based on anticipated health-care needs.

Try not to get overwhelmed. Start by thinking about how well this year's plan served you and your family. The complexity of plan comparisons makes relying on your HR team especially important.

Start by telling them what you liked and did not like about this year's plan.

4. Consider flexible spending and health savings accounts

Flexible spending accounts (FSAs) and health savings accounts (HSAs) offer tax advantages for medical and dependent care expenses. Review contribution limits and eligible expenses for each account and decide how much you should set aside for the coming year.

Remember that FSAs typically have a "use it or lose it" rule, so plan your contributions carefully.

And don't let the acronyms confuse you. Perhaps think of your FSA as your "fast" account that generally has to be spent in the year it is funded and think of your HSA as your potential "hold" account which can be saved, if not needed, year-over-year and even invested subject to certain conditions.

5. Evaluate supplemental benefits

Beyond core health insurance, many employers provide added benefits such as life insurance, disability coverage, legal assistance, and wellness programs. Assess your need for these supplemental benefits and consider increasing coverage to suit your needs.

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Benefits you have to pay for are a bit like subscriptions for services, such as streaming. Individually they may not seem expensive, but when combined they can be expensive.

6. Plan for retirement

Open enrollment is a great time to review your retirement savings strategy. Check your contribution rates to your workplace savings plan if you have one.

A best practice to consider is to at least contribute enough to get the maximum company match. Another is to increase your contributions steadily to at least 10%.

Other questions to consider include whether to use a pre-tax contribution or a Roth contribution, if offered.

The former allows money to be contributed pretax and comes out as taxable income when withdrawn, while the Roth is made up of after-tax contributions and comes out as tax-free when withdrawn, subject to certain conditions.

Although company contributions will most likely be taxable when withdrawn, having tax-free Roth dollars in retirement may still be beneficial.

7. Understand deadlines and take action

Be aware of open enrollment start and end dates, and submit your selections before the deadline. Late submissions may result in missed coverage or defaulting to less optimal plans.

Because benefits decisions may impact your take home pay it is best to complete the forms with your partner. Completing the process early and sleeping on your decisions before final submission is another good idea.

8. Seek advice if needed

If you're unsure about which options are best for you and your family, consider consulting with benefits specialists or financial advisors. They can help you understand complex plan terms and make choices that align with your goals.

This is particularly true if you have special circumstances, such as a family member with a chronic condition.

A final note on AI

Open enrollment season is your annual opportunity to tailor your benefits to meet your evolving needs. By reviewing your current coverage, attending informational sessions, comparing options and acting early, you can ensure you're maximizing the value of your employee benefits.

You could also try using AI for guidance, whether by uploading plan documents to a chatbot and asking it to summarize them, or simply by asking it questions. AI isn't foolproof, however, so be sure to verify any information you've been given with your HR team.

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The One Big Beautiful Bill Act, signed into law in July, has wide-reaching implications for taxpayers. From an enlarged standard deduction for older adults to more-generous tax credits for families with young children, the legislation contains a plethora of provisions that could lower your 2025 tax bill — or, in some cases, increase it.

Just as noteworthy as the new rules are those that extend provisions from the 2017 Tax Cuts and Jobs Act (TCJA). The OBBBA makes permanent the reductions in federal income tax rates that the TCJA implemented. (Otherwise, those tax rates would have expired on December 31.)

In addition, the OBBBA increases the federal estate tax exemption from $13.99 million per person in 2025 to $15 million per person, or $30 million for a married couple, in 2026. It will be adjusted annually for inflation.

Without congressional action, the exemption would have dropped to about $7 million after 2025. Because of the exemption’s size, the vast majority of taxpayers don’t need to worry about paying federal estate taxes.

You may want to schedule an appointment with your financial planner or tax preparer to discuss how the bill will affect your 2025 tax liability.

“You’ve got to run the numbers, because there’s so much that’s changing,” says Tim Steffen, director of advanced planning at Baird.

To get you started, we have guidance here on how to get the most from some of the significant provisions in the OBBBA.

A BONUS DEDUCTION FOR OLDER ADULTS

Starting with the 2025 tax year, taxpayers who are 65 or older will be eligible for an additional standard deduction of $6,000. The bonus deduction, which is scheduled to expire at the end of 2028, comes on top of an existing extra standard deduction of $2,000 for single filers who are 65 or older or, for married couples who file jointly, $1,600 for each spouse who is 65 or older.

The expanded deduction means a single taxpayer who is 65 or older will be able to deduct up to $23,750 from taxable income, while a married couple who file jointly will qualify for a deduction of up to $46,700, assuming both are 65 or older.

That can translate to significant savings for older taxpayers. For example, an older married couple in the 22% tax bracket (for 2025, that includes income of $96,951 to $206,700) could see tax savings of $2,640 a year, says Marilou Davido, a certified financial planner in Milwaukee.

Older taxpayers in lower tax brackets could save $600 to $1,200 a year, she says.

The legislation won’t eliminate taxes on Social Security benefits. But because the taxability of benefits is based on a calculation involving your adjusted gross income, the OBBBA will reduce the number of beneficiaries who pay the taxes from 36% to 12%, according to the White House Council of Economic Advisers.

Now for the caveats: The bonus standard deduction will affect only eligible taxpayers whose income exceeds the amount of the deduction, so low-income people won’t benefit from this tax break.

At the other end of the spectrum, higher-income taxpayers could see the amount of the bonus deduction reduced or eliminated altogether.

The deduction starts to phase out for couples with modified adjusted gross income of more than $150,000 ($75,000 for single filers) and is fully phased out at MAGI of $250,000 ($175,000 for singles). Your modified adjusted gross income is your adjusted gross income with certain deductions added back.

The higher standard deduction won’t shield Medicare beneficiaries who pay a surcharge, known as the income-related monthly adjustment amount (IRMAA), on their Part B and Part D premiums. The surcharge is based on a version of your MAGI that’s specific to Medicare and is calculated before the standard deduction applies.

Taxpayers whose MAGI is close to surpassing the eligibility threshold for the bonus standard deduction should consider avoiding moves that could reduce this tax break’s value.

For example, converting funds in a traditional IRA to a Roth IRA could reduce or eliminate the bonus deduction by increasing your MAGI, says Davido.

If you want to convert to a Roth, consider spreading out the conversions over several years to keep your MAGI below the threshold, she says.

One argument in favor of doing a Roth conversion is that it protects your nest egg from future tax increases, because Roth withdrawals are tax-free as long as you’re 59½ or older and have owned the Roth for at least five years.

But now that the OBBBA has extended current tax rates, individuals can spread out conversions without fear of a tax increase, at least under the current presidential administration, Davido says.

Timing matters, too: Converting to a Roth before age 65 would avoid the potential loss of the bonus deduction.

Capital gains distributions and withdrawals from traditional IRAs will also increase your MAGI. But there are steps you can take to offset that income and preserve the bonus deduction.

If you’re still working, increasing pretax contributions to 401(k) plans and health savings accounts (HSAs), for example, will reduce your MAGI.

Individuals who are 70½ or older can reduce their MAGI by making qualified charitable distributions from their IRAs, says Todd Calamita, a CFP in Charlotte, N.C.

In 2025, taxpayers can make QCDs of up to $108,000 from their IRAs to qualifying charities. If you’re 73 or older, a QCD will also count toward your required minimum distribution (RMD). A QCD isn’t deductible, but it’s excluded from taxable income.

Davido recommends working with your tax preparer or financial planner before year-end to adjust income-tax withholding and estimated tax payments for 2026. The bonus standard deduction could enable you to reduce the amount of tax withheld from your Social Security benefits and IRA withdrawals; you may also be able to lower your quarterly estimated tax payments.

A BIGGER BREAK FOR HOMEOWNERS

The OBBBA contains a valuable tax break for homeowners who live in high-tax states, and like the bonus standard deduction, the change could affect your 2025 tax bill.

Starting in 2025, those who itemize will be able to deduct up to $40,000 in state and local taxes (SALT), up from a cap of $10,000. The cap will increase by one percentage point each year through 2029, then return to $10,000 in 2030.

The SALT deduction includes state income, property and sales taxes; it’s often most useful for property taxes, which have soared as home values have risen in recent years. The primary beneficiaries will be homeowners in states with high property taxes, such as New Jersey and New York.

The cap is gradually reduced for those with MAGI above $500,000 ($250,000 for a married individual filing separately), and taxpayers with MAGI of $600,000 or more will be limited to deducting $10,000 on their tax returns.

Consequently, homeowners who are eligible for the higher cap need to be even more mindful of their 2025 MAGI, says Robert Keebler, a CFP with Keebler and Associates in Green Bay, Wis. This phaseout is potentially more costly than the phaseout for the bonus standard deduction, he says.

Keebler offers this example: Suppose you’re married, file jointly and have a MAGI of $500,000. Your itemized deductions include $40,000 in state and local taxes. If you convert $100,000 from a traditional IRA or 401(k) to a Roth, your gross income rises to $600,000, and your state and local tax deduction is reduced to $10,000. While your gross income went up by $100,000, your taxable income rose by $130,000.

At a 35% marginal rate, your effective rate on the conversion is 45.5%.

As is the case with older taxpayers, homeowners who are eligible for the higher SALT cap should consider spreading out Roth conversions and taking other steps to keep their MAGI below the thresholds.

Homeowners in high-tax states may get even more out of the higher cap by bunching their itemized deductions.

For example, if you paid your 2025 property taxes earlier this year and receive a bill for 2026 in December, pay it before December 31 so you can deduct both payments on your 2025 tax return, Davido says.

Using the bunching strategy, you would claim the standard deduction in 2026 and make two property tax payments in 2027 so you can itemize in that year.

Bunching your charitable contributions is also an effective way to increase your itemized deductions and lower your tax bill.

A donor-advised fund is a useful tool for this strategy. These funds, offered by major financial institutions, allow you to make a large contribution, deduct the donation on the current year’s tax return, and decide later which charities you want to support.

However, there are other provisions in OBBBA that could reduce the effectiveness of this strategy, which we’ll discuss below.

NEW STRATEGIES FOR CHARITABLE CONTRIBUTIONS

As you consider your year-end charitable contributions, it’s important to understand new tax breaks for givers — along with new limits on how much some donors will be allowed to deduct.

Starting in 2026, taxpayers who don’t itemize can deduct up to $1,000 in charitable contributions, or up to $2,000 for married couples who file jointly. Donations to donor-advised funds and private foundations aren’t eligible for this new deduction.

If you don’t itemize and want to take advantage of this tax break, consider making the charitable contributions you’d ordinarily make by the end of this year in January 2026 instead.

Meanwhile, taxpayers who itemize on their tax returns and deduct charitable contributions will be subject to a new limit on the amount they can deduct. The maximum amount of cash gifts donors can deduct will remain at 60% of AGI.

However, starting in 2026, the deduction will be limited to the amount of charitable contributions that exceed 0.5% of adjusted gross income, Steffen says.

For example, a married couple with AGI of $100,000 who donate $700 to charity will be permitted to deduct only $200.

To avoid that new floor, itemizers may want to make their 2026 contributions in 2025, keeping in mind how that will affect other aspects of their tax bill.

Taxpayers in the top tax bracket (for 2025, that includes income higher than $626,350 for singles or $751,600 for joint filers) may also want to accelerate charitable contributions into 2025 because of a cap on all itemized deductions those taxpayers can claim.

Starting in 2026, the amount of itemized deductions taxpayers in the 37% tax bracket can claim will be limited to 35% of their taxable income.

MORE BENEFITS FOR HEALTH SAVINGS ACCOUNTS

A health savings account can be a valuable tool to set aside money for both current and future health care expenses. An HSA provides a triple tax break: Your contributions are tax-deductible (or pretax if made through your employer), the money grows tax-deferred, and you can use it tax-free for eligible medical expenses in any year.

After you turn 65, you can also withdraw money tax-free from the HSA for Medicare premiums, in addition to other out-of-pocket health care costs.

The new law has three HSA-related provisions. Starting on January 1, 2026, you can withdraw up to $150 per month ($300 for couples) from an HSA tax-free to pay monthly or annual fees for direct primary care arrangements (also known as concierge medicine), in which doctors provide services in exchange for a membership fee.

The law also clarifies that enrolling in a direct primary care arrangement does not disqualify someone from being able to contribute to an HSA if they also have an eligible high-deductible health policy.

Not all concierge practices qualify under the new law as direct primary care arrangements — there are limits to the types of services they can provide beyond primary care.

Additionally, the law permanently exempts telehealth services from the HSA-qualified plan deductible. Most medical care, except for some preventive care, must be subject to the deductible for a health insurance policy to be HSA-qualified.

During the COVID pandemic, you could receive some telehealth services without first paying the plan’s deductible — typically with a $5 or $10 co-payment — but that rule expired at the end of 2024. The OBBBA permanently exempts telehealth from the deductible requirements, retroactive to January 1, 2025.

Finally, bronze plans and catastrophic plans sold on the Affordable Care Act insurance marketplace will automatically be HSA-qualified, starting with the 2026 plan year.

Using an HSA-eligible bronze plan and making tax-free withdrawals from your HSA to pay for direct primary care could be a win-win, says Roy Ramthun, founder and president of HSA Consulting Services LLC in Silver Spring, Md.

You can sign up for direct primary care for your regular doctor’s visits but have a high-deductible bronze plan as a backstop if you end up needing expensive medical care. You’ll be eligible to contribute to an HSA, and you can also use HSA money tax-free to pay the monthly direct primary care fees.

Notably, the version of the OBBBA that originally passed the House of Representatives would have allowed people who sign up for Medicare Part A to contribute to an HSA. But that provision wasn’t included in the final law, so the current rules still stand: You can make HSA contributions only if you haven’t enrolled in either Medicare Part A or Part B.

If you or your spouse is still working and you have health insurance from an employer with 20 or more employees, you can delay signing up for Part A and Part B. But you must enroll within eight months of losing that coverage; otherwise, you could face a lifetime late-enrollment penalty for Part B.

If you sign up for Part A after you turn 65, that coverage takes effect up to six months retroactively. Keep that time frame in mind when calculating your HSA contribution.

CHANGES TO THE HEALTH INSURANCE MARKETPLACE

Several administrative changes are coming to Affordable Care Act marketplace coverage because of provisions in the OBBBA, as well as new rules from the Centers for Medicare & Medicaid Services.

The open-enrollment period to sign up for a marketplace plan will be shorter. Next year, open enrollment for the federal marketplace (HealthCare.gov) will run from November 1, 2026, to December 15, 2026. States that operate their own marketplaces won’t be allowed to extend open enrollment past December 31. Currently, open enrollment goes to January 15, and even longer in some states.

Before you enroll in a marketplace plan, you’ll need to provide evidence of income eligibility for tax credits for your premiums. (Currently, you have 90 days after you enroll to submit the information.)

If your income increases after you enroll and you don’t update your information with the marketplace, you may have to pay back the extra subsidy when you file your income tax return.

Under the previous rules, there were limits to how much you have to pay back if you underestimate your income.

Enhanced subsidies are scheduled to expire

Perhaps the most consequential outcome for ACA plan enrollees is that the OBBBA didn’t extend enhanced premium subsidies for marketplace coverage. The enhanced subsidies are set to expire at the end of 2025, and Congress probably won’t pass additional legislation to extend them.

So the size of the subsidies and the income levels to qualify are likely to shrink significantly on January 1, 2026. People who earn more than 400% of the federal poverty level will no longer be eligible for any subsidies after 2025. For 2026 marketplace plans, 400% of the poverty level is $62,600 for singles and $84,600 for couples.

If you have individual health insurance from the ACA marketplace and you plan to do Roth conversions, you may want to convert more money before the end of 2025 than in 2026, when the extra income may make you ineligible for the subsidy.

“For a retired client, we’ve been able to do about $100,000 of Roth conversions yearly with the enhanced premium tax credits,” says Mark Whitaker, a CFP and founder of Retirement Advice LLC, a fee-only financial planning firm in Provo, Utah.

“Going forward, to hit their ACA subsidy levels, they will only be able to do about $60,000 of Roth conversions a year.”

But be sure to consider other variables, too, such as your tax rate and other income cut-offs. (For more, see the section above on the bonus deduction for older people.)

UPDATES FOR FAMILIES

If you have kids at home, you may benefit from multiple provisions in the OBBBA.

More-generous tax credits for parents

The OBBBA permanently extends the child tax credit and increases it to $2,200 per child, up from $2,000. The credit phases out for singles with modified adjusted gross income of $200,000 or more and married couples who file jointly with MAGI of $400,000 or more.

The OBBBA also makes permanent a separate credit of up to $500 for families with other dependents, such as parents or adult relatives.

The adoption tax credit is more valuable, too. If you adopted a child this year, you can claim a credit for up to $17,280 in eligible expenses. Here’s what’s new: $5,000 of the tax credit will be refundable.

In other words, taxpayers with tax liability of less than $5,000 can still claim that portion of the credit, which means some of that amount could be returned to parents as a refund.

Starting in 2026, the maximum tax credit parents can claim for child and dependent care expenses, such as the cost of day care or a nanny, will increase to 50% of as much as $3,000 in expenses for one dependent and 50% of as much as $6,000 for two or more dependents (both up from 35%).

The credit decreases based on adjusted gross income to as little as 20% of expenses, but OBBBA increased the income thresholds. For married couples with AGI between $150,000 and $210,000, the credit ranges from 35% to 20%. Couples with AGI of $210,000 or more are eligible for a credit of 20% of expenses.

Expanded uses for 529s

Originally designed as a tax-advantaged way to save for college, 529 plans have been expanded over the past several years to permit tax-free withdrawals for certain non-college expenses, too. The OBBBA extends these uses even further.

“The new rules allow up to $20,000 per year to be used for elementary and secondary school tuition, course materials, tutoring, fees for standardized tests, and more,” says Robert Farrington, founder of the website The College Investor.

Previously, tax-free withdrawals of 529 money for K-12 students were limited to tuition, up to $10,000 annually.

The legislation also permits tax-free 529 withdrawals for certain other expenses, such as non-degree credential programs for plumbing, electrical, HVAC and some other trades; certification and licensing expenses; and continuing education required to maintain those licenses.

That means beneficiaries who don’t go to college will have additional ways to benefit from tax-advantaged 529s.

The law permanently allows rollovers from 529 plans to ABLE accounts, where the money can continue to grow tax-deferred for people with disabilities who may not go to college.

Most of the changes related to 529 distributions took effect as soon as the law was signed on July 4, although the increased, $20,000 annual limit for K-12 expenses doesn’t apply until the 2026 tax year.

Keep in mind that not all states have altered their rules to follow the federal expansion. “For example, California doesn’t allow 529 plans to be used for elementary or secondary school expenses,” says Farrington.

Trump accounts for kids

The OBBBA introduces a new investment account — known as a Trump account — for kids younger than 18, and the government will seed the account with $1,000 for children born between January 1, 2025, and December 31, 2028.

Parents and others can contribute up to $5,000 a year to the account until the child turns 18. Contributions are invested in a fund that tracks a broad U.S. stock index, and they grow tax-deferred.

You may have better options for your child’s long-term savings. Annual contributions are not tax-deductible, and earnings are taxed at the beneficiary’s income tax rates when withdrawn.

Unless the money is used for certain expenses, such as education or up to $10,000 for a first-time home purchase, you’ll have to pay a 10% early-withdrawal penalty before age 59½.

“The only advantage of Trump accounts is the $1,000 birthday gift for newborn children. Families should, of course, accept the free money,” says Mark Kantrowitz, a college-savings expert and author of How to Appeal for More Financial Aid.

But for your child’s future college expenses, you’re better off contributing to a 529 plan, because withdrawals for qualified educational expenses are tax-free.

LAST CHANCE TO CLAIM TAX CREDITS FOR THESE ENERGY-SAVING MOVES

The OBBBA speeds up the deadlines to take advantage of certain tax credits related to saving energy.

The Energy Efficient Home Improvement Credit, which provides a 30% tax credit toward the cost of energy-efficient windows, home energy audits, heat pumps and other energy-saving home improvements, was previously scheduled to phase out in 2033. (The law imposed annual limits for certain projects, such as $600 for exterior windows and skylights.)

But now, the credit expires at the end of 2025. The Residential Clean Energy Credit, which provides a tax credit of up to 30% for more-ambitious projects, such as solar electric panels and solar water heaters, will also expire on December 31. The equipment must be installed and operational by year-end to qualify for the credit.

Additionally, the $7,500 EV tax credit to buy or lease qualified electric vehicles, along with the $4,000 credit for eligible used EVs, ends September 30, 2025.

At the same time, however, the OBBBA provides a new tax break for car buyers: a deduction of up to $10,000 in interest on loans for cars purchased between 2025 and 2028.

You don’t have to itemize to claim this deduction, but it’s available only for loans taken out to buy new cars assembled in the U.S., which rules out many popular models. The deduction phases out for individuals earning more than $100,000 or married couples making more than $200,000.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Similar to Social Security, Medicare is facing funding issues. You may have heard that the Hospital Insurance fund for Medicare Part A is expected to be able to fully pay scheduled benefits only until 2033, three years sooner than last year’s projection. However, it's not as if the cost of Medicare will stay steady and suddenly increase in 2033. Instead, Medicare beneficiaries have a more immediate problem in the form of rising premiums and surcharges starting in 2026 and continuing over the next decade.

The 2025 Medicare Trustees Report projects a steady increase in Medicare Part B premiums and IRMAA surcharges over the next nine years. The projections are based on expected rises in healthcare costs, particularly for outpatient hospital services and physician-administered drugs. It's crucial for retirees and those approaching retirement to understand these projections for proper financial planning.

It's essential to note that these projections are subject to change, and the official figures may vary. The Centers for Medicare and Medicaid Services (CMS) will release the official numbers this fall.

Projected Medicare Part B premiums

The projections in the 2025 report show a significant increase compared to last year's report. The largest year-over-year jump is expected between 2025 and 2026, with a projected increase of $21.50, setting the 2026 Part B premium at $206.50, up from $185.00. The 2024 report projected a 1% increase from 2025 to 2026, with premiums rising to $186.90, only $1.90 more.

The report estimates that the standard monthly premium for Medicare Part B will potentially reach almost $350 by 2034. If the estimates are accurate, the Part B premium is expected to increase by 188% by 2034.

Here is a table with the projected standard monthly premiums:

Projected Medicare Part B IRMMA surcharges

The IRMAA is a monthly surcharge added to the standard Part B premium. The SSA uses the most recent complete federal tax return data that the IRS provides to assess your liability for the IRMAA, generally, two years prior. For 2026, the SSA will look at your 2024 tax return to calculate the surcharge you owe, if any.

These surcharges, which affect high-income beneficiaries, are expected to grow significantly over the next nine years.

Essentially, those who pay the IRMAA are paying a greater share of their actual Medicare Part B and D premiums. As it stands, the government pays a substantial portion — about 75% — of the Part B premium for most beneficiaries who pay, on average, the remaining 25%. For 2024, premiums from Parts B and D covered 23% of Medicare program costs, according to the 2025 Trustees' Report.

If you are a higher-income beneficiary, you will pay a larger percentage of the total cost of Part B based on the income reported on your annual tax return. You'll pay monthly Part B premiums equal to 35%, 50%, 65%, 80%, or 85% of the total cost, depending on your income and subsequent surcharge amount. For 2025, the IRMAA Part B surcharge ranged from $74.00 to $443.90 per month, or $888 to $5,326.80 annually, on top of the base premium of $185.00.

For 2026, the standard Part B premium is projected to be $206.50, and monthly Part B surcharges will range from $82.60 to $495.60.

Here is a table with the projected Part B IRMAA surcharges:

Other factors that contribute to IRMMA surcharges

As I explained above, the IRMAA surcharge shifts responsibility for a greater portion of Part B premiums from the Medicare trust fund directly to high earners. However, politics also plays a role in determining how many people pay the IRMAA by adjusting thresholds, freezing inflation adjustments and changing methodologies.

Effective in 2018, the Medicare Access and CHIP Reauthorization Act of 2015 lowered certain income thresholds used to determine the IRMAA amounts that beneficiaries must pay, resulting in a greater number of beneficiaries paying the higher amounts. Moreover, beginning in 2020, the legislation adjusted the methodology used to index the thresholds, and accordingly, more beneficiaries will be subject to the income-related premiums.

Lastly, the Bipartisan Budget Act of 2018 established an additional premium level that took effect in 2019 for individuals with incomes at or above $500,000 (and couples with incomes at or above $750,000), who pay a premium covering 85% of the average program cost. These thresholds will not be indexed until 2028 at the earliest.

Editor’s note: This story has been updated to reflect the amounts at which the 2025 IRMAA surcharge starts.

Related Content

• Medicare Costs Projected to Jump in 2026
• Medicare Premiums 2026: Projected IRMAA Brackets and Surcharges for Parts B and D
• When Will Social Security Run Out of Money? And Medicare?
• How to Appeal the IRMAA for Medicare Parts B and D

If you're like many pre-retirees, you dread the task of estimating your retirement health care expenses.

That's because this somewhat complex task involves projecting expenses around unknown future health problems, while debating the merits of Medicare Supplements (aka Medigap) vs Medicare Advantage or comparing health care exchange policies if you aren't yet eligible for Medicare.

Avoiding or postponing this task can lead to the tendency to underestimate retirement health care expenses.

A Jackson study found that nearly two-thirds of pre-retiree investors underestimate their expected health care retirement costs and responded that they anticipate health care expenses significantly below the retirement average of $8,600 a year per person.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Health care costs vary in retirement based on when you retire, how healthy you are, how long you are likely to live and health care price inflation.

In this article, you'll learn what health care expenses you might expect in retirement and how to proactively plan for them.

Retirement health care expenses

You can divide retirement health care expenses into these five common categories:

• Premiums. Monthly cost for the coverage you select
• Deductibles. The amount you pay upfront for certain services before coverage kicks in
• Cost-sharing or copays. Costs for doctor's visits, medical procedures, lab tests and prescriptions that you pay a portion of
• Out-of-pocket costs. Costs for doctor's visits, medical procedures, lab tests and prescriptions that aren't covered by your insurance
• Long-term care expenses. Costs for assisted living, nursing home care and home health aides, which are not covered by Medicare

Medicare eligibility begins at 65. According to a study from Milliman, the earlier you retire before Medicare eligibility, the more your health care costs will increase. Conversely, the longer you wait to retire after age 65, the more your costs decrease.

Living even five years longer than your targeted life expectancy will increase your health care spending by 42%.

Because health care costs tend to rise faster than general inflation, your health care spending is likely to increase at a higher rate than you may expect over a 25- to 30-year retirement.

Retiring before age 65 means you'll have to pay more of your own health care expenses because you won't be covered by employer health care insurance. You'll either need to continue your employer-based coverage — potentially at your own cost — or sign up at HealthCare.gov, also known as Obamacare and the Affordable Care Act (ACA).

Costs on the exchange depend on your income, where you live and the type of coverage you sign up for and include a combination of premiums, deductibles, copays and out-of-pocket costs.

Depending on your income, you may qualify for a government subsidy for your premium. If you don't, premiums for an individual insurance policy on the ACA Marketplace run on average between $800 and $1,200 a month for someone age 62 to 65.

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Once you are on Medicare, you'll have ongoing premiums that stack up differently depending on whether you choose a Medicare Advantage plan, which covers your hospitalization, doctor's visits, prescriptions, lab work and outpatient care, or whether you go with a Medicare Supplement plan that supplements traditional Medicare.

How to plan for health care expenses in retirement

Regardless of whether you're covered by Medicare or the ACA, yearly average medical costs in retirement — excluding long-term care — average $8,600 a year, according to the Jackson study mentioned above.

Use this as a baseline for your first year of retirement and bump it up annually to cover inflation and the higher cost of health care inflation.

A good potential rule of thumb would be to add 5% a year to the $8,600 figure and stick that in your budget.

The table below shows how health care costs, excluding long-term care, are likely to rise every five years after retirement.

Of course, your costs are likely to vary, perhaps even significantly, should you have a chronic or life-threatening health condition, but budgeting in this way will at least keep you in the neighborhood where your costs are likely to end up.

Source: SEC Compound Interest Calculator

A final word

Health care expenses could be a major factor in retirement income and expense planning.

By understanding what your health care costs are likely to be in retirement and factoring those costs into your retirement expense budget, you're likely to create a more realistic idea of your retirement expenses and avoid unexpected, budget-busting expenses.

Lucas Cox, CFP®, CKA®, RICP®, NSSA® is a financial advisor at The Lighthouse Planning Company in Russellville, Arkansas, and a licensed insurance professional. AR insurance license #16128263. Investment advisory services offered through CreativeOne Wealth, LLC, a registered investment adviser. Confident Financial Solutions and CreativeOne Wealth are unaffiliated companies. We are not affiliated with or endorsed by Medicare or any government agency, and do not provide tax or legal advice.

This material is for informational purposes only and should not be construed as a recommendation or advice for your particular situation. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company.

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• How to Age-Proof Your Retirement Plan

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Chances are, you’ve heard of the Trump megabill that was recently signed into law. The so-called “One Big Beautiful Bill” (OBBB) is garnering chatter and for good reason: A lot is included in the mega legislation.

But even though many provisions survived the bill’s initial proposal, several did not. For instance, under the originally proposed megabill, gym memberships — and therefore pickleball courts in gyms — could have been eligible expenses for Health Savings Accounts (HSAs).

*HSAs are tax-advantaged savings accounts that allow pre-tax contributions and tax-free withdrawals for qualified medical expenses.

While the provision to make gym memberships HSA-eligible didn't make it into the final version of the OBBB, you may still be able to claim certain expenses for staying active in retirement.

Stay active in retirement with HSA-eligible expenses

Retirees may use HSAs to save on taxes while playing sports — or by participating in other exercises — in retirement.

For instance, as a pickleball player (or “pickler”) myself, I often put in contact lenses when I go out to play. Prescription contact lenses and glasses are HSA-eligible.

Here are a few other examples of HSA-eligible expenses for retirees who like to stay active:

• Allergy medications, for playing outdoor sports like golf or basketball.
• First aid kits are helpful for all occasions, but particularly for contact sports.
• Hearing aids — so you can properly hear if that tennis or pickleball was “out” or not!

But you may be wondering: Is sports equipment or facility usage HSA-eligible? Well, that depends.

If you meet the strict guidelines of having a “Letter of Medical Necessity” (LMN) from a doctor specifying that, say, “golf” is medically necessary for the specific condition you have, then your golf expenses might be HSA-eligible. However, that rarely happens and is often not the case.

And while you can use HSA funds for a non-qualified expense, like pickleball, without penalty after you reach 65 years old, the withdrawal would be considered taxable income.

But that shouldn’t stop you from reaping the health benefits of staying active in retirement.

Best sports for older adults may increase life span

Exercising is tough for all ages, but it can be particularly difficult as you get older. Human bodies don’t work the same at age ten as they do at age 70.

However, exercising in retirement can significantly improve your health. The Physical Activity Guidelines for Americans, released by the U.S. Department of Health and Human Services, suggests that 150 minutes of brisk walking or 75 minutes of running each week may help you live longer.

And according to AARP, ten types of exercise can help you achieve a longer lifespan. Here are the top five:

• Walking. Almost one-third of older adults report they do some type of brisk walk each day.
• Running. If you have a busy schedule, going for a run can cut down on the time spent exercising.
• Water aerobics and workouts. One study of 80,000 people found that swimmers were 41% less likely to die of a heart disease or stroke, per AARP.
• Dancing. Whether it’s swing, line dance, or ballroom, dancers may have stronger muscles, better balance, and a better mood, according to AARP.
• Weightlifting. For the seriously motivated, lifting weights is an excellent way to maintain physical strength in retirement, helping with tasks like climbing stairs or carrying heavy groceries, per the National Institute on Aging.

Other popular exercises in retirement include golf, tennis, and badminton. I tend to gravitate towards pickleball or aerobics classes myself (town or city-led community centers can have cheaper class rates and feature more older adults than maybe privately-led sessions). But it’s really a matter of personal preference.

Of course, as with all exercises, it’s important to take things slowly, ensure you have the proper form, and talk to a doctor if you’re unsure whether an exercise is right for you.

Fun retirement ideas that help your tax bill

If you’re looking for a way to save on taxes and are not so much into fitness, no biggie. There are plenty of fun activities to do in retirement with added tax benefits. Here are a few of our favorites:

• Volunteering. The Urban Institute reports that 60% of adults aged 55 and older volunteer. Certain volunteerism expenses, like meals, lodging, and gas, may be tax-deductible.
• Learning a new skill. Research shows education is strongly associated with health benefits. And if you’re interested in saving on tax, you can potentially do so through the lifetime learning credit.
• Picking up a hobby. Got a secret talent? Why not try it out with a hobby? Although hobby expenses aren’t tax-deductible, you won’t be subject to the self-employment tax, though you may still owe taxes on hobby income.

Whatever you choose to do in retirement, be sure it’s right for you. That can be trying a new activity while saving on tax, or reaping the health merits (and perhaps HSA benefits) by staying active. Either way, there are a plethora of ideas out there to help you get started.

And who knows? Maybe future changes on Capitol Hill will lead to an HSA-eligible gym membership, as initially proposed in the so-called “One Big Beautiful Bill.” We can dream, right?

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Retirement planning has as much to do with amassing and spending your nest egg as it does with determining your health care needs.

Nobody wants to think about getting ill or injured when they get old, but it’s inevitable for many. How inevitable?

Roughly 70% of Americans age 65 and older will require long-term care at least once in their lifetimes, according to the U.S. Department of Health and Human Services. That encompasses everything from a nursing home to in-home care. The amount of care a person needs depends on their unique circumstances, but either way, it isn't cheap.

A semi-private room in a nursing home, on average, costs $9,581 per month, while a private room is $10,798 a month, according to Genworth’s 2025 Cost of Care survey. A home health aide will cost you $6,673 per month.

Even if you are in perfect health during retirement, it can be expensive. Fidelity Investments estimates that a 65-year-old retiring this year will spend $172,500 in health care. That’s up 4% from $165,000 in 2024.

In 2002, the first year Fidelity put out an annual estimate, the cost was $80,000. That doesn't account for any unforeseen illnesses or injuries that might require additional care.

“Health is wealth,” says Nilay Gandhi, a senior wealth adviser at Vanguard. “Without health, there’s not much anyone can do, regardless of how much wealth they have. Health care expenses are one piece of the puzzle for retirees and pre-retirees.”

1. Decide what kind of health care you want in retirement

To prepare for health costs, Gandhi encourages investors and their financial planners to follow a multistep process (PDF) that begins with determining the type of care you want and how much you can afford.

If you need round-the-clock assistance, do you prefer it at home or within a facility? If you get injured or ill, do you want insurance to cover the cost of care, or do you want to pay for it out of savings?

Once you decide on the type of care, create the necessary documents to ensure your wishes are met if you're ever incapacitated and can’t make your own decisions.

Some of those documents include a will, a financial power of attorney and an advance health care directive or living will.

After that, it's time to figure out how you’ll pay for it. You have options. Insurance is one; using your savings is another.

2. Know what Medicare does and doesn't cover

Any health planning for retirement should first factor in Medicare, which kicks in at age 65. Most retirees will have to choose between original Medicare or Medicare Advantage, which will have a direct impact on health expenditures.

Original Medicare tends to have what Vanguard says are substantial deductibles, as well as co-insurance. There is no limit on what out-of-pocket costs you might owe. Since Medicare doesn't cover dental, vision and hearing exams, you'll need a supplemental Medigap insurance plan.

A Medigap insurance plan is health insurance that private companies sell to help cover some of the costs that an original Medicare plan does not cover.

Another option is a Medicare Advantage Plan, which is sold by a select group of private insurers and replaces original Medicare coverage. These plans tend to have lower costs and more benefits, but the doctors within the network can be limited.

"If cost is the primary concern, Medicare Advantage will usually lead to lower health care costs over time (though it may be more expensive in specific years in which you experience poor health outcomes)," according to Vanguard. "Original Medicare with a supplement will tend to provide a more flexible choice of health providers and more predictable costs, regardless of your health status in any particular year."

3. Decide when insurance makes sense

Long-term care insurance is a popular choice because it makes it easy. You pay a monthly premium, and if you ever get sick, your insurance covers it. You get peace of mind, but there’s a catch.

Depending on your age and health, it can be pricey, ranging from $100 and up per month. The older you are, the higher the monthly premiums.

There are also limitations on what it covers. For it to kick in, you need to be considered chronically ill, unable to perform at least two activities of daily living (ADLs) without assistance or experiencing cognitive decline and requiring supervision.

Something to keep in mind: While prices are supposed to be the same over time, it's not uncommon for premiums to jump.

Long-term care insurance has its perks
There are tax benefits with LTC insurance. For one, the benefit payout amounts aren’t taxed. Some premiums are deductible as a medical expense if they contribute to medical expenses exceeding 7.5% of your adjusted gross income. As you get older, the deductible amount of the premiums increases.

You can purchase traditional LTC insurance or hybrid LTC insurance. With the latter, the LTC benefit is part of a life insurance policy or annuity. The benefit is always paid, and premiums are guaranteed. If the LTC insurance coverage is not used, it is transferred as a death benefit or cash value if it is an annuity.

It's also more expensive, easily over $1,000 per month, depending on the bells and whistles.

According to Vanguard, you would benefit from LTC insurance if:

• You can afford the premiums.
• Your family or trusted friends can handle the paperwork and claims process for you.
• You crave peace of mind that comes with insurance.
• You are healthy enough to meet underwriting guidelines.

4. Determine if sharing the costs is a better option than insurance

If you're healthy, your family history is void of any chronic or debilitating illnesses or diseases and you’ve saved for your retirement, long-term care insurance might not be the best option.

Alternatively, you can share in the costs beyond what Medicare covers out of pocket. There are a few ways to do that, including an annuity and a Health Savings Account.

With an annuity, you pay an upfront lump sum and, in return, get a lifetime of regular payments which you can use for medical expenses.

How much the annuity costs depends on your life expectancy, whether you have inflation protection, and whether there is a guaranteed minimum payment amount. You can purchase an annuity to begin paying out right away or defer payments for a future date.

Qualified longevity annuity contracts (QLACs) are annuities that are purchased with money from an IRA or 401(k). These vehicles lower your required minimum distribution balances, which can help defer taxes when you have to take RMDs.

5. Max out a Health Savings Account

Many people view a Health Savings Account, or HSA, as a means of saving for health care expenses in the present, rather than the future.

But an HSA can be a tax-advantaged way to save for future medical needs. With an HSA, the money you invest can roll over year after year. There is no use-it–or-lose-it rule attached to an HSA.

HSAs are triple tax-free. You get a deduction when you contribute, they grow tax-free, and you don’t pay taxes when you withdraw them for qualifying medical expenses.

There are limitations. For 2026, the limit is $4,400 for self-only coverage and $8,750 for family coverage. If you're 55 or older, you can contribute an additional $1,000. An HSA is only available with a high-deductible health plan.

“You can invest it and let it grow so you are prepared for your health care needs,” says Scott Cutler, CEO of HealthEquity.

Don’t wait until it's too late

Declining health might not be avoidable, but it doesn’t have to leave you destitute or a burden to your loved ones. A little planning now can go a long way later.

If insurance is the route you're going, the younger you are when you take out a policy, the cheaper it is. If you plan to use investment options or savings, the sooner you start planning, the better off you'll be.

“Everyone should have a health care plan regardless of age,” says Gandhi. “A long-term plan boils down to does somebody want to inherit that risk, want to share that risk or transfer the risk completely?”

Related content

• Don't Let Health Care Costs Wreck Your Retirement: Here's How
• Average Cost of Health Care by Age
• How to Pay for Long-Term Care
• We're Retired With $4.6 Million. My Wife Chose Our Medicare Advantage Plan for the $0 Premium, But I Want Original Medicare’s Freedom. Is It Too Late?

The House version of the One Big Beautiful Bill Act (OBBB) was set to make Health Savings accounts (HSAs) more accessible and useful to those aged 55 and over, such as allowing those still employed and enrolled in Medicare Part A to continue to make contributions to their HSAs. However, that provision and most other changes that benefited retirees were left out of both the Senate and the final version of the OBBBA.

HSAs can help you build a nest egg to pay for medical expenses in retirement, including Medicare premiums and co-payments. However, the prevailing rules prohibit participation after you enroll in Medicare and are confusing for those who have an HSA while they are preparing to retire.

There is one provision that might be helpful to those who use the Affordable Care Act marketplace to buy healthcare while waiting for their Medicare eligibility to kick in at 65. More about that opportunity is below.

Present HSA rules limit contributions when close to retirement

Currently, HSA contributions, including those made by an employer, are prohibited when you are covered by "disallowed" insurance plans, including Medicare Part A. Workers can still enroll in HSA-eligible workplace plans and use funds already in their HSAs for eligible expenses; they just can’t make any additional contributions once they are enrolled in Medicare.

Then, you face the tricky period when you have an HSA and are preparing to enroll in Medicare. There is a six-month lookback period, during which your Medicare Part A coverage is back-dated six months, starting no earlier than the first month of Medicare eligibility, the month of reaching age 65.

A best practice for workers is to stop contributing to their HSA six months before the month they apply for Medicare to avoid penalties. Be aware that the month of your application is what is used to calculate the six-month lookback, not the month you wish the benefits to begin.

You must satisfy the following four requirements to be HSA-eligible in 2025:

• Be covered by a qualified high deductible health plan (HDHP)
• Have no other disqualifying health coverage
• Not be enrolled in any part of Medicare
• Not be able to be claimed as a dependent on someone else’s current-year tax return

The One Big Beautiful Bill did not include most of the provisions included in the House version that are detailed below.

Importance of repealing the Medicare Part A enrollment prohibition

Medicare eligibility kicks in at age 65. At that point, most people have to decide whether to enroll in Medicare Parts A and B or a Medicare Advantage plan. If you have credible coverage from an employer, you can delay enrollment without paying a late enrollment penalty when/if you enroll later. However, if you claimed your Social Security benefits before age 65, you have created a conflict if you enrolled in an HDHP plan through your employer.

If you are receiving Social Security benefits when you turn 65, you will be automatically enrolled in Medicare Part A and Part B. If you have credible employer coverage, you can waive Part B coverage penalty-free and use your Medicare Part A coverage as secondary coverage; you can't disenroll from Part A. If your employer-provided coverage is an HDHP, you'd be able to keep your coverage, but you will no longer be eligible to make or receive contributions to your HSA.

The only way to opt out of this would be to rescind your Social Security election within 12 months and pay back all benefits received to date. You may or may not be aware that you have the option to stop and restart your Social Security benefits. There are several reasons why you may want to revisit your decision to file for benefits; you'd also be able to increase your monthly benefit if you claimed your benefits before your full retirement age (FRA).

1. Proposed change: If the repeal is implemented, anyone with an HDHP plan can continue to make contributions after enrolling, voluntarily or automatically, in Medicare Part A. This also means that employees who have an HDHP plan can claim their Social Security benefits before age 65 without jeopardizing their HSA eligibility.

Status: Did not pass.

Changes to contribution limits and new spousal contribution and catch-up rules

There are more favorable provisions in the legislation that would raise the contribution limits for some workers and give married couples some flexibility when making catch-up contributions.

Contribution limits. In 2025, annual HSA contribution limits are $4,300 for self-only coverage and $8,550 for family coverage, and HSA contribution limits are indexed every year for inflation. Employees making under certain income thresholds would be allowed to save more.

2. Proposed change: Higher contribution limits based on income. The higher contribution limit would allow individuals who make less than $75,000 annually to contribute an additional $4,300 every year to their HSA. Families who make less than $150,000 may contribute an additional $8,550 each year to their account; the additional contribution limits would be indexed for inflation.

The additional amounts would be phased out for individuals making $100,000 annually and $200,000 for families.

Status: Did not pass.

Catch-up contributions. Now, if both spouses are HSA-eligible and age 55 or older, they must open separate HSA accounts to make their respective “catch-up” contributions of $500 or an extra $1,000 annually.

3. Proposed change: New rule would allow both spouses to consolidate their catch-up contributions and deposit them into one account. Both spouses still must be HSA-eligible.

Status: Did not pass.

Restrictions when one spouse has a Flexible Spending Account (FSA). An employee is not eligible for an HSA if their spouse is enrolled in an FSA.

4. Proposed change: This provision would allow an individual to be eligible for an HSA even if their spouse is enrolled in an FSA.

Status: Did not pass.

Allowing HSA account holders to use more healthcare services and providers

Current rule disallowing use of on-site employer health clinics. Employees who utilize discounted health care services at a clinic at their worksite can not contribute to an HSA. The IRS views such services as a significant medical benefit, therefore incompatible with HSAs.

Status: Did not pass.

5. Proposed change: Employees who make use of the discounted health care services at a health clinic at their worksite may still contribute to an HSA.

Status: Did not pass.

Current rule disallowing membership in a DPC. Currently, membership in a direct primary care (DPC) would disallow you from having an HSA. These plans are considered a "separate and additional form of health insurance coverage" that is incompatible with HSAs. A DPC practice typically charges a patient a flat monthly or annual fee in exchange for access to a range of primary care and medical administrative services.

6. Proposed change: The new law would allow individuals to maintain HSA eligibility if they have a direct primary care (DPC) membership of up to $150 per month.

The new law also allows HSA funds to pay for DPC services. However, HSA distributions for DPC services cannot exceed $150 per month for individuals or $300 per month for family arrangements. These amounts would be adjusted annually for inflation.

Status: Passed! If you have an HDHP and contribute to an HSA, you can now make use of direct primary care memberships to get your care, use funds to pay the monthly fee, and maintain your eligibility to contribute to an HSA.

New expenses are eligible for HSA reimbursement

The definition of eligible expenses has been expanded to cover certain fitness expenses and also would allow some expenses incurred before an HSA is established to be eligible for reimbursement.

Current rule: Sports and fitness expenses, such as fitness facility membership fees, are not treated as HSA-qualified medical expenses.

Status: Did not pass.

7. Proposed change allowing certain fitness expenses: This provision would expand the definition of qualified medical expenses for HSAs to allow workers to use their HSAs for physical fitness memberships and instructional physical activity.

Individuals would be allowed up to $500 per year, and families would have a limit of $1,000 per year, with up to one-twelfth of such expenses allowed per month.

Status: Did not pass.

Current limit on eligible expenses: HSA funds can only be used for qualified medical expenses (QME) after the HSA is established.

8. Proposed change: The new definition would allow individuals to use HSA funds for medical services incurred within 60 days before the establishment of an account. These expenses would now be treated as eligible QME.

Status: Did not pass.

HSAs can help pay your medical expenses in retirement

HSAs are getting more attention as Gen Xers move into pre-retirement and lack the employee benefits, such as pensions and employer-provided health care that previous generations took into retirement. The attention is well-deserved, as an HSA can be a powerful wealth-building tool; think of it as a medical IRA. Why? Because the contributions are tax-advantaged and the distributions from an HSA are tax-free when used for qualified medical expenses.

After 65, the rules are even more generous. You can take distributions for any reason without paying a penalty. The 20% penalty for non-medical expenses imposed before age 65 goes away. If you use the money for something other than QMEs, you only pay income taxes.

Although most of the favorable changes for retirees proposed in the One Big Beautiful Bill did not come to fruition, there was one provision that might be helpful if you are using the Affordable Care Act marketplace to buy health insurance as you wait for your Medicare eligibility to begin. As of January 1, 2026, you can enroll in an HDHP Bronze plan or pick up a catastrophic plan and contribute to an HSA.

What hasn't changed is the cost of the legislation. The deficit spending caused by the bill could trigger mandatory cuts to Medicare, amounting to roughly $500 billion from 2026 to 2034.

If you'd like to know more about changes included in the legislation, read Four Proposed Changes to Medicare in the One Big Beautiful Bill Act — and What Ended Up in the Signed Bill.

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Did you have “global pandemic” on your bingo card of possible retirement risks? The reality is that risks abound, and you can’t always see them coming.

Still, a proactive stance can help you get through them — and thrive.

Here are the top risks retirees need to be aware of and how to guard against them.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

1. Outliving your savings

Americans are living longer than ever. While most would welcome increased longevity, it also means you’ll need money to fund additional years of retirement. What can you do to ensure your savings last?

• Work longer. Working just a few years longer can help you save more money, while also delaying your need to tap your nest egg.
• Part-time work. Instead of leaving work behind completely, consider taking a part-time job to bring in some income so your money can continue to grow.
• Delay Social Security. If your health is good and you have other income sources now, you can get a significantly bigger paycheck by waiting on Social Security.
• Consider an annuity. A lifetime income annuity provides you with a guaranteed source of income you can’t outlive.

2. Encountering sequence of returns risk

Your chances of running out of money are much less if you retire during a booming market and your portfolio is up. But what happens if you retire during a market decline? It’s a little-known phenomenon known as sequence of returns risk.

Making withdrawals from your portfolio when it’s down forces you to sell more investments to come up with the amount you need. Not only does that drain your portfolio faster, but it leaves you with fewer assets with which to participate in an eventual rebound.

A wealth adviser can work with you in the years leading up to retirement to create a pool of money for your immediate cash needs so you won’t need to make withdrawals if the market is down.

The chart below illustrates what can happen to a hypothetical portfolio based on different returns at different points in time.

3. Rising health and medical expenses

Health care is one of the biggest retirement expenses, but many people overlook it when planning for retirement.

Health care costs are expected to rise about 7.5% in 2025, a near-record trend that is driven by inflationary pressure, prescription drug spending and behavioral health utilization.

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To ensure that health care costs don’t overwhelm your retirement, pay attention to these things:

• Health savings accounts (HSAs). You can build up an account for health-related expenses by saving in tax-advantaged HSAs in the years before retirement.
• Health insurance. If you retire before age 65, you’ll need to line up health insurance coverage. Some options to consider: COBRA through your previous employer, a health exchange plan or a high-deductible plan paired with an HSA.
• Medicare. Medicare won’t cover all your health care expenses in retirement. In addition to Medicare, which covers some doctors’ visits and hospital stays, you’ll want to purchase supplemental plans to pay for out-of-pocket costs.
• Long-term care insurance. The possibility of needing long-term care is higher than you might think. Long-term care insurance can pay for care when you’re no longer able to care for yourself. The earlier you buy it, the more affordable the premiums will be.

4. Letting inflation erode your purchasing power

It may seem harmless in small doses, but over time, inflation can erode your purchasing power. Think of it as a silent thief stealing the value of your money. While Social Security has automatic cost-of-living adjustments each year, it’s up to you to make sure the rest of your money keeps up with inflation. These strategies might help:

• Invest for growth. Over time, stocks have shown the ability to outpace inflation. Even in retirement, it’s important to keep some of your portfolio invested in stocks.
• Inflation-proof your investments. Consider inflation in the context of your investment selection and work with your financial adviser to adjust based on your situation.
• Explore annuities. Some annuities come with payments that increase with inflation, providing a steady income stream that retains its purchasing power over time.

Retirement is an exciting chapter in life, offering countless opportunities for personal fulfillment and quality time with loved ones.

However, concerns about financial security can create anxiety and keep you up at night.

The good news is that with a little bit of planning, you can pave the way for a smooth transition into retirement.

Related Content

• Phased Retirement: Why Easing Into Retirement Might Be Your Best Move
• Delay Social Security Benefits — Even by a Month — to Boost Your Check
• Average Cost of Health Care by Age
• How to Help Shield Your Retirement From Inflation
• Three Essential Estate Planning Steps to Protect Your Nest Egg

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you have a Health Savings Account (HSA) or are thinking about one, the IRS has announced the new contribution limits for 2026. These annual inflation adjustments are designed to keep pace with rising costs.

However, it's worth noting that HSAs might not be right for everyone.

So, as you plan your finances for next year, it’s good to know the new limits and the pros and cons of an HSA. Let's dive in.

2026 HSA and HDHP limits: What’s new?

For 2026, the IRS has set the following annual HSA contribution limits:

• Individual (self-only) coverage: $4,400 (up from $4,300 in 2025)
• Family coverage: $8,750 (up from $8,550 in 2025)
• Catch-up for age 55+: $1,000 (unchanged)

Remember: To qualify for an HSA, you must be enrolled in a high-deductible health plan (HDHP).

The IRS also adjusted the minimum deductible and maximum out-of-pocket amounts for HDHPs for 2026:

• Minimum deductible: $1,700 for individuals, $3,400 for families
• Maximum out-of-pocket: $8,500 for individuals, $17,000 for families

Key benefits of an HSA

HSAs are popular for their triple tax benefits. Basically, contributions are made pre-tax, the money grows tax-free, and withdrawals for qualified medical expenses are also tax-free.

Unlike flexible spending accounts (FSAs), HSA balances roll over from year to year and can be invested, allowing funds to grow for future needs. You own your HSA and keep it and the funds in it when you leave your job.

After age 65, you can use HSA funds for non-medical expenses without penalty (though you’ll pay regular income tax on those withdrawals).

Is there a downside to an HSA?

However, HSAs are not without their downsides. The most significant is the requirement to enroll in a high-deductible health plan. While those plans often have lower monthly premiums, they come with higher upfront costs if you need care.

For instance, next year (2026), you’ll need to pay at least $1,700 out of pocket before your insurance starts to pay for most services, or $3,400 for a family. (In many cases, the deductible limits are much higher than those minimums.)

Those out-of-pocket costs can be a significant financial strain for people with ongoing health needs or limited savings. Some people might even delay necessary care due to concern about upfront costs.

There are also strict rules about how HSA funds can be used.

• If you spend HSA money on anything other than qualified medical expenses before age 65, you’ll face income tax and a 20% penalty on the amount withdrawn.
• That's a steeper penalty than what applies to early withdrawals from many retirement accounts.
• Over-contributing to your HSA can also result in tax penalties.

Managing an HSA requires record-keeping. You should keep receipts and documentation to show that withdrawals were for eligible expenses. You could owe taxes and penalties if the IRS audits you and cannot provide proof.

Eligibility is another limitation. You can’t contribute to an HSA if you’re enrolled in Medicare or are claimed as someone else’s dependent. You also can’t have a general-purpose FSA at the same time as an HSA.

Finally, the full benefits of an HSA are only realized by those who can afford to contribute and invest consistently. Setting aside enough to take advantage of long-term tax savings may be challenging for people living paycheck to paycheck.

HSA tax planning for 2026: Bottom line

As you review your options for the coming year, weigh the practical considerations involved with HSAs.

The new limits for 2026 offer more opportunity to save, but only if the structure of an HDHP and HSA rules fit your health and financial situation.

Consult a trusted and qualified financial planner or tax professional if you're unsure.

Read More

• Tax Benefits and Hidden Costs of HSAs
• 401(k) and IRA Contribution Limits for 2025
• Types of Income the IRS Doesn't Tax
• 2026 IRA and 401(k) Contributions Are Set: What to Know Now

A health savings account is a remarkable tool to help pay for out-of-pocket medical expenses.

HSAs offer a triple tax advantage: Contributions are tax-deductible (up to $4,300 for self-only coverage and $8,550 for family coverage in 2025, plus an extra $1,000 if you’re 55 or older), growth from the account’s investments is tax-deferred, and withdrawals are tax-free for eligible expenses.

You must have a qualifying high-deductible health insurance plan to fund an HSA.

HSA reimbursement options

You can use HSA money for out-of-pocket expenses, including insurance deductibles and co-payments, as well as items ranging from pain-relief medication to bandages to hearing-aid batteries.

The Health Equity website has a list of qualifying expenses. If you make a non-qualified withdrawal, you’ll owe income tax on it, plus a 20% penalty if you’re younger than 65. After you turn 65, you’ll owe income tax but no penalty.

Unlike flexible spending accounts, HSAs don’t impose a deadline by which you must use the funds, and you can get reimbursement for qualifying medical expenses at any time.

For example, you could claim HSA funds years from now for a medication you buy today, as long as you owned the HSA when you made the purchase.

The ability to hold on to HSA funds over the long term is valuable.

If you can afford to avoid tapping your HSA during your working years, the account may grow significantly from your contributions and investment earnings; HSAs typically allow you to invest in stocks, mutual funds and other securities. In retirement, you can use HSA money to pay for qualifying medical expenses, including premiums for Medicare Part B and Part D and Medicare Advantage.

When you’re ready to claim HSA money, you may be able to go to your provider’s web portal and transfer funds to your checking or savings account. In addition, some HSA providers allow you write yourself a check from your account.

If your HSA comes with a debit card, you can use it to make eligible purchases directly — for example, at pharmacies or doctors’ offices.

And depending on your HSA provider, you may be able to withdraw funds from an ATM to reimburse yourself for out-of-pocket medical expenses.

Tracking HSA paperwork

Even if your HSA administrator doesn’t require you to submit receipts for reimbursement, it’s a good idea to hang on to them, says Michael Eldredge, product manager for HSA provider Inspira Financial.

You’ll need them for your tax records in the event you’re audited. If your doctor provided letters of medical necessity for certain purchases, save the letters in case your HSA provider or the IRS requests proof that the HSA expenses were eligible, says Itamar Romanini, vice president and general manager of online retailer HSA Store.

By hanging on to payment records, you can keep track of any expenses that you don’t claim right away, too. File receipts and explanations of benefits in a safe place at home, or save them digitally.

HSA Store’s free ExpenseTracker Mobile App lets you store and upload images of receipts. With TrackHSA ($1 a month after a 30-day free trial), you can upload receipts and organize expenses by year so that you can easily find them later.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

Read More About HSAs

• The Wealth-Building Powers of Health Savings Accounts
• Three 'Hidden Costs' of Health Savings Accounts
• 10 Things You Need to Know About Health Savings Accounts

Retirement: It's that time when you should be able to kick back, relax and finally enjoy the fruits of your hard work. But let's be honest — one of the biggest worries retirees face is the rising cost of health care. Medical expenses aren’t slowing down, and if you’re not prepared, they can hit you like a ton of bricks.

Take David and Linda, for example. They're a couple in their early 60s who worked hard and saved well. They felt confident about their retirement plan — until health care costs started to feel like a dark cloud hanging over their heads. Sure, they knew Medicare would help, but what about all those gaps and extra costs no one really talks about?

The truth is, health care costs can sneak up on you. According to Fidelity Investments, a 65-year-old couple retiring today can expect to spend over $300,000 on their combined health care throughout retirement — and that doesn’t even include long-term care.

When David and Linda heard that number, they knew they had to get serious about planning.

They started by taking a closer look at their health. David had a history of high blood pressure, and Linda had been managing type 2 diabetes for years. On top of that, their family medical histories revealed more risks — heart disease for David and arthritis for Linda.

Recognizing these potential concerns gave them some clarity. If they wanted to protect their financial future, they needed to prepare for medical costs beyond the basics.

Looking at Medicare

Medicare seemed like the next big puzzle to solve. David dove into the research and quickly realized there was more to it than he expected.

Medicare Part A would cover hospital stays, while Part B handled outpatient services and preventive care. Part D was crucial, too, helping to manage the cost of prescription drugs.

But the gaps — those hidden expenses that Medicare doesn’t cover — were still concerning. After weighing their options, David and Linda chose a Medigap policy to help fill those gaps. It wasn’t the easiest decision, but knowing their out-of-pocket costs would be manageable helped give them peace of mind.

Even with that coverage, they knew surprises could still pop up. So, they decided to build a dedicated health care fund. Thankfully, they had been contributing to a health savings account (HSA) for years, giving them a nice tax-free pool of money to use for qualified medical expenses.

To stay ahead of inflation and rising health care costs, they shifted part of their investment portfolio toward growth-oriented assets as well.

One concern that kept nagging at them was the cost of long-term care. A close family friend had recently faced staggering nursing home expenses, and David and Linda didn’t want to end up in the same situation.

After exploring their options, they chose a hybrid life insurance policy with a long-term care rider. This gave them the reassurance that their savings wouldn’t be wiped out if they needed extended care.

Considering prescription drug costs

Prescription drug costs were another area they tackled. They learned that switching to generic medications whenever possible can save a bundle.

They also started using tools like GoodRx to compare prices and make sure they were getting the best deals.

To stay on top of things, they reviewed their Medicare Part D plan every year to ensure their medications were still covered in the most cost-effective way.

Beyond financial planning, David and Linda realized they needed to prioritize their health to avoid bigger medical costs later on. They committed to regular checkups, screenings and vaccinations to catch potential issues early.

They also made lifestyle changes — morning walks, healthier meals and more active social lives. Surprisingly, these changes didn’t just improve their health — they also deepened their connection with each other and their community.

Feeling more confident but still wanting to make sure everything was buttoned up, David and Linda met with their financial adviser. Together, they mapped out a tax-efficient withdrawal strategy, aligned their retirement income with projected health care costs and made smart decisions about when to take Social Security.

With those final pieces in place, they knew they were ready.

Planning pays off

In the end, their preparation paid off. David and Linda entered retirement with confidence instead of anxiety. With a solid plan in place to handle health care costs, they were free to focus on what truly mattered to them: spending time with their family, traveling and embracing the retirement they had always dreamed of.

Planning for health care in retirement may seem overwhelming, but taking the time to prepare can offer incredible peace of mind. By assessing your health care needs, maximizing your Medicare benefits and building a dedicated savings strategy, you can better ensure your retirement is both secure and enjoyable.

The key is to start early, stay informed and remain proactive in managing your health care expenses.

Related Content

• How to Age-Proof Your Retirement Plan
• Planning for Healthcare Costs: How Financial Advisers Can Guide Their Clients
• 2025 HSA Contribution Limit Rises Again

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

There’s an amazing, tax-advantaged, wealth-building tool available for savvy savers that you may be neglecting to use right now. What is this great financial tool, and how can you take advantage of what it offers?

It’s a health savings account, or HSA.

HSAs are often billed as a type of savings account to help people manage health care costs. You can contribute pre-tax dollars to an HSA, and then pull money from your HSA to cover qualified medical expenses. This can reduce your total costs because the money isn’t taxed, allowing you to keep more of those dollars in your own pocket to use for your health care.

While it’s true an HSA is a type of savings account, this simple definition also masks the power of these vehicles when fully optimized. Here’s the full story you need to know.

The secret powers of a health savings account

The nuance that often gets missed with health savings accounts is that you don’t just get to save into an HSA. You can invest the money in the account, too. If you want to fully optimize your HSA, this is an important first step. Evaluate the investment options within your health savings account and ensure that any cash contributed to your HSA is then invested within it.

Ideally, you then keep that money invested — and earn more tax advantages for doing so. The money you contribute to an HSA is tax-free, and so are the investment earnings within the account. Withdrawals from the account won’t be taxed either, so long as you use the money on qualified health care costs.

HSAs offer serious tax savings

No other financial account offers so many ways to earn money tax-free. The key is to plan accordingly so that you can:

• Invest the money within the HSA (rather than keeping it in cash) so it can benefit from compounding returns.
• Keep the money invested in the HSA for the long term, and pay for any present-day health care costs from your cash flow during your working years.
• Build what essentially amounts to a “medical IRA” for your retirement — once you reach age 65, you can use HSA funds to pay for your health care needs as well as for some insurance premiums (like Medicare parts A, B, D and Medicare HMO premiums) tax-free. Note that participating in Medicare makes you ineligible as an individual to contribute to an HSA, but there may be some workarounds if you have a spouse who is not yet eligible for Medicare and is covered by the family high-deductible health plan.

An HSA is still a great tool to consider using, even if you can’t commit to keeping the contributed funds invested for the long term. You can still benefit from many tax advantages and have a vehicle that will help manage present-day health care costs.

However, if your plan is to use those HSA dollars in the short term, investing within the account may not be the best strategy for you — and if you tend to incur a lot of medical costs annually, an HSA might not make sense at all.

Who can use an HSA, and how do you get one?

To use an HSA, you need to have a high-deductible health plan (HDHP) either through your employer’s group insurance benefits or from an independent marketplace. Once you have an HDHP in place, you can open a health savings account. Even if you get your insurance through an employer and an employer contributes to an HSA on your behalf, the HSA belongs to you and stays with you.

Assuming that you:

• Have a high-deductible health plan
• Do not have other health coverage and are not enrolled in Medicare
• Are not claimed as a dependent on someone else’s tax return

… then you can open and use a health savings account.

If you qualify, however, it’s still worth first asking if an HSA makes sense for your specific situation, particularly if you rely heavily on your insurance coverage and have many health care needs. It’s not that the HSA is bad, but that the cost of the required HDHP might outweigh the potential financial benefits of investing within an HSA for long-term growth.

Some cautions against HSAs for certain savers

Again, you must have a high-deductible health plan to open and fund an HSA. As the name suggests, these plans come with lower premiums but very high deductibles. For 2025, that means an annual deductible of at least $1,650 for individual coverage or $3,300 for family coverage. Depending on how you use your health insurance, these plans can end up costing you far more out-of-pocket than alternatives.

In general, HDHPs are best suited for folks who are in great health, do not frequent their doctors or specialists beyond preventive care, and do not anticipate any major shifts or changes to their lifestyle that could impact how they want to utilize their health care coverage.

HDHPs might also make more sense for those who have strong incomes and can handle paying for whatever medical bills they do incur from their current cash flow — meaning, you likely earn enough that you have the ability to pay for bills or office visits, and could even cover a high deductible should you need to do so.

Simple ways to maximize the utility of your HSA

Here’s the rundown of how we most often recommend our wealth management clients use their health savings accounts, assuming that they have sufficient cash flow to handle typical medical costs in the present day and do not have any looming health concerns that would make an HDHP cost-prohibitive:

• Open and fund an HSA; contribute the maximum allowed amount each year. In 2025 you can contribute $4,300 as an individual or $8,550 for family coverage. You can make an additional $1,000 “catch-up contribution” if you are 55 or older. You are not taxed on what you contribute to an HSA.
• Make sure you elect to direct your contributions to investments within the HSA (rather than just cash). We usually set the allocation to mirror that in a core portfolio; we also adjust based on age (the younger you are, the more aggressive you can afford to be, although that should be managed over time the closer you get to age 65).
• Let the invested funds stay invested! While you can make withdrawals to cover qualified health care expenses, the ideal strategy is to let your HSA funds remain invested for the long term in the same way you would with a qualified retirement account. Investment growth within the HSA is not taxed, either.
• Once you turn 65, use your HSA as a tax-free “medical IRA.” By contributing to your HSA and letting it grow through your career, you can arrive into retirement with a specific tax-free fund available for qualified health care costs in your later years.

Eric Roberge, CFP®, is the founder of Beyond Your Hammock, a Boston, Mass., financial planning firm that provides wealth management strategies to couples and young families. To jumpstart your financial planning journey, get a free copy of Eric’s ebook 5 Strategies to Optimize Your Finances.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Do you have money saved for retirement? If you’re like most Americans preparing for retirement, you will answer “yes.” However, you may not know what types of accounts those savings are held in or their tax implications upon retirement.

You may also not have considered the best order in which to withdraw assets from different accounts in retirement — what financial planners call the “sequence of distributions.”

Leveraging an intentional and appropriate sequence of distribution is key to minimizing your taxes and preserving your assets in retirement. In this article, I’ll introduce you to the different types of assets you may have in your retirement accounts and give you some pointers on how to align your withdrawals with your income needs, your overall financial and legacy goals — all while preserving those assets and minimizing your taxes.

Sources of retirement income and their tax treatment

There are a number of sources of retirement income you may be able to draw on in retirement. Understanding what these are — and how they are treated by the tax code from an income perspective — is crucial when deciding on a sequence of distributions.

• Traditional tax-deferred retirement accounts. These include traditional IRAs, 401(k)s and 403(b)s. Because you get a tax deduction when you contribute to these accounts, taxes are due when you withdraw money in retirement. Your savings continue to grow on a tax-deferred basis until withdrawal. Upon withdrawal, they’ll be taxed at your ordinary income tax rate.
• Roth retirement accounts. These include Roth IRAs, Roth 401(k)s and Roth 403(b)s. Because you do not get a tax deduction when you contribute, you can withdraw money in retirement tax-free.
• Taxable accounts. These include brokerage, financial services, bank and credit union accounts that you can use for investment. These are accounts that aren’t available for any special tax treatment from the IRS. Taxes are due on any interest, dividends and capital gains you receive from these accounts.
• Health savings accounts (HSAs). This is the only triple-tax-deferred account you can potentially use for retirement savings and income withdrawals. You receive a tax deduction when you contribute to an HSA, your savings grow on a tax-deferred basis, and withdrawals are tax-free in retirement as long as they are used to pay health care expenses.

Why the sequence of distribution matters

When you and your spouse (if you have one) have multiple retirement accounts, drawing from them in the wrong order has the potential to increase your tax bill and decrease the size of your nest egg.

In general, withdrawals from taxable savings, Roth retirement accounts and HSAs (if used for medical expenses such as Medicare premiums) will have a more positive impact on your tax situation because withdrawals from those accounts aren’t taxable. Withdrawals from tax-deferred retirement accounts, including withdrawing money for the purpose of Roth conversions, generally are more likely to increase your tax bill because those withdrawals are taxed at ordinary income rates.

Case study: Monica's retirement strategy

Here’s a hypothetical case study that illustrates the importance of an appropriate and intentional sequence of distributions in retirement.

Monica, who is single, recently retired at age 66. She was covering her current expenses by taking withdrawals from her traditional IRAs. At the same time, she was converting as much money as she could to a Roth. These moves had the potential to bump her up to the 24% tax bracket, which would have not only increased her federal taxes but also imposed a higher rate on those tax payments.

What Monica hadn’t considered was that she was getting hit with extremely high monthly Medicare premiums, which are tied to income. The more Monica withdrew from her traditional IRA and the more she converted to her Roth IRA, the higher her income went — increasing her Medicare premiums:

Monica's adjusted strategy

Monica adjusted her withdrawals to first withdraw money for her income needs from her taxable account ($300,000) and Roth IRA ($500,000) before tapping into her traditional IRA. This adjustment reduced her Medicare premiums:

Note: Medicare premiums are based on the income reported two years prior. So Monica’s 2024 and 2025 premiums are based on her income in 2022 and 2023, respectively.

Monica’s premiums will go up once she reaches age 73, which is when she will have to take required minimum distributions (RMDs). But until then, she will benefit from lower Medicare premiums. This case study takes into account the fact that Monica was not focused on providing a tax-free legacy — anyone in that situation may want to organize their distributions differently.*

A final word

Every retiree's financial situation is unique, so it's important to tailor your withdrawal strategy to fit your specific needs and goals. By understanding the tax implications of each account type and planning your withdrawals thoughtfully, you can minimize taxes and help preserve your nest egg. A well-informed approach to your retirement income can make a significant difference in your overall financial health and legacy.

* The scenario shown herein is for illustrative purposes only and based on hypothetical assumptions; the use of alternate assumptions could produce significantly different results.

Amy Buttell contributed to this article.

This article was written and presents the views of our contributing advisor, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Licensed Insurance Professional. This information has been provided by an Investment Adviser Representative. The statements and opinions expressed are those of the author and are subject to change at any time. Provided content is for overview and informational purposes only and is not intended and should not be relied upon as individualized tax, legal, fiduciary, or investment advice. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Since open enrollment season is here, you're probably swamped trying to figure out which coverage is best for you or your family. But did you know that your benefit choices can potentially impact your tax situation?

Making informed decisions as you choose your coverage can help you optimize your tax benefits and avoid pitfalls.

So, here are some tax issues to watch out for during open enrollment.

What is open enrollment?

It's good to review what open enrollment is before we look at some tax concerns. Typically occurring in the fall each year, open enrollment is a time when employees can review and modify their benefits selections for the coming year.

This usually includes health insurance, retirement plans, and other employer-sponsored programs.

Employees don’t need a qualifying life event to make changes during the open enrollment period.

ACA open enrollment

Annual income

One common tax issue with benefits coverage involves underestimating income for premium tax credits for Affordable Care Act (ACA) Marketplace health insurance plans.

These federal tax credits are based on your estimated income for the coming year.

So, if you underestimate your income, you may receive more tax credits than you're entitled to, leading to an unexpected tax bill when you file your return.

(That’s because the premium subsidies are based on your actual income).

To avoid this:

• Carefully estimate your income for 2025, considering potential raises, bonuses, or changes in employment.
• If your income increases during the year, report the change to the Marketplace to adjust your premium tax credit.
• Consider taking only a portion of the advance credit if you're unsure about your income, as you can claim any additional credit when you file your tax return.

Failing to report life changes affecting subsidies

Life changes can significantly impact premium tax credits and cost-sharing reduction eligibility. So, report changes like marriage, divorce, birth or adoption of a child, or significant income changes to the Marketplace.

Not reporting these changes can result in you owing money when you file your tax return or missing out on additional subsidies you may be eligible for.

Premium Tax Credit reconciliation

When you file your tax return, you'll need to reconcile any advance premium tax credits you received:

• Keep all relevant tax forms, including Form 1095-A, from the Marketplace.
• Be prepared to complete Form 8962 to reconcile your credits.
• Understand that significant differences between your estimated and actual income can result in either owing additional taxes or receiving a larger refund.

HSA limits 2025

Health Savings Accounts (HSAs) offer significant tax advantages, but misunderstanding the rules can lead to tax issues. The most important is to ensure you're eligible for an HSA by confirming you have a qualifying high-deductible health plan (HDHP).

Also, be aware of the HSA contribution limits for 2025 ($4,300 for individual coverage and $8,550 for family coverage, plus a $1,000 catch-up for those 55 and older).

Remember that HSA contributions are pro-rated if you're not eligible for all twelve months of the year. Exceeding contribution limits can result in excess contribution penalties and additional taxes.

Flexible Spending Account (FSA) rules

FSAs also provide tax benefits, but they come with strict use-it-or-lose-it rules. So, plan your pre-tax FSA contributions, since funds you don't use are typically forfeited at year-end.

• Be aware of any grace period or carryover options your plan may offer.
• Understand which expenses qualify for FSA reimbursement to avoid potential tax issues.

Medicare open enrollment

As you approach age 65, be careful with the interaction between Medicare and Marketplace coverage:

• Once you're eligible for premium-free Medicare Part A, you are generally no longer eligible for premium tax credits in the Marketplace.
• Continuing to receive tax credits after Medicare eligibility can result in having to repay those credits when you file your taxes.

So, plan your transition from Marketplace to Medicare coverage to avoid gaps in coverage or tax complications. Medicare open enrollment, for those already enrolled in Medicare, runs from October 15 to December 7 each year.

Employer-sponsored coverage

If you have access to employer-sponsored health insurance, remember your premiums are typically paid with pre-tax dollars, reducing your taxable income.

But it’s worth noting how employer-sponsored coverage might impact your eligibility for Marketplace subsidies. In some cases, if your employer's coverage is considered affordable, you might not qualify for premium tax credits. (Various tests and standards apply.)

• An employer's coverage is considered "affordable" if the employee's share of the premium for self-only coverage doesn’t exceed a certain percentage of the employee's household income.
• For 2024, this threshold is 8.39% of household income.
• For 2025 it will be 9.02%.

So, consider any potential tax implications if you waive employer coverage in favor of a Marketplace plan.

Open enrollment tax issues: Bottom line

By being aware of these potential tax issues and planning during open enrollment, you can make choices that optimize your health coverage while minimizing unexpected tax consequences.

Always consult a tax professional or benefits specialist if you have questions and pay close attention to open enrollment deadlines that apply to you.

Related

• Tax Benefits and Hidden Costs of HSAs
• The 2025 Health Savings Account Contribution Limit Rises
• FSA 2024 Contribution Limits
• IRS Tax Breaks Now Include Breast Cancer Screenings, Contraceptives

The intricacies of tax planning are a critical component of your overall retirement strategy. Minimizing taxes in retirement isn’t just about reducing today’s tax bill — it’s about ensuring that your hard-earned money lasts longer and that you can draw from your assets efficiently.

By applying a logical, data-driven approach, you can create a retirement tax strategy that maximizes your income and minimizes unnecessary tax burdens.

Tax planning: Why it’s essential in retirement

The tax landscape changes as you transition from earning a salary to drawing income from different sources, such as Social Security, pensions, retirement accounts and investments. Without a solid plan, taxes can eat away at your retirement income, leaving less for your lifestyle and goals.

Here are the key elements of tax planning as you approach retirement:

• Managing tax brackets. As your income sources shift, it’s critical to understand how to stay within favorable tax brackets. Drawing too much from tax-deferred accounts, such as a 401(k) or traditional IRA, can push you into a higher tax bracket, leading to a larger tax bill. Strategic withdrawals can help you optimize your tax liability.
• Timing of withdrawals. Deciding when to tap into different accounts is a central component of tax minimization. For example, delaying withdrawals from tax-deferred accounts until later years could make sense if you expect your income to decrease in retirement, reducing your tax liability. Alternatively, you may want to start drawing on those accounts earlier to manage your taxable income.
• State taxes. State income tax laws vary widely. If you plan to move in retirement, consider the tax implications of your new location. Some states have no income tax, while others may tax retirement income at higher rates. Accounting for state taxes in your retirement plan could save thousands over time.

Tax minimization strategies for retirement

Several strategies can help minimize taxes in retirement. These techniques ensure that you’re not only reducing your tax burden today but also extending the longevity of your savings for years to come.

1. Roth conversions

One of the most effective tax-minimization strategies is converting a portion of your tax-deferred accounts, such as a traditional IRA or 401(k), into a Roth IRA. Unlike traditional retirement accounts, withdrawals from Roth IRAs in retirement are tax-free. The key is to strategically convert these funds during low-income years — such as right after retirement but before required minimum distributions (RMDs) begin at age 73.

• Why it works. Roth conversions allow you to pay taxes upfront while in a lower tax bracket. The funds then grow tax-free and can be withdrawn tax-free in retirement.
• Strategic timing. The years between retirement and age 73 (when RMDs kick in) often present a golden “tax window” where your income may be lower, making it an ideal time to convert funds without pushing yourself into a higher tax bracket.

2. Harvesting capital gains

As you approach retirement, managing investments in taxable accounts becomes crucial for tax minimization. One technique is tax-loss harvesting, which involves selling investments that have lost value to offset gains from other investments. Additionally, strategically selling appreciated assets during years when your taxable income is lower can help minimize the capital gains taxes you pay.

• Long-term gains. For individuals in lower tax brackets, long-term capital gains may be taxed at 0%. This is especially beneficial during retirement, when your income is likely lower than in your peak earning years.
• Capital losses. If you have investments that have declined in value, selling them to realize a loss can offset gains elsewhere in your portfolio. This reduces your overall tax liability.

3. Tax diversification

Tax diversification means having different types of accounts — tax-deferred (e.g., traditional 401(k) and IRA), taxable (e.g., brokerage) and tax-free (e.g., Roth IRA) — to draw from in retirement. By having a mix of accounts, you can strategically choose which to withdraw from each year based on your income needs and the tax implications of each type of account.

• Tax-deferred accounts. Traditional IRAs and 401(k)s provide a tax deduction when contributing, but withdrawals are taxed as ordinary income in retirement. These accounts are great for reducing taxable income while working, but without a strategy, you could face higher taxes when withdrawing in retirement.
• Taxable accounts. These are brokerage accounts that offer flexibility. Only the capital gains are taxed, and you can manage when to realize gains. This flexibility allows you to control your taxable income in a given year.
• Roth accounts. Roth IRAs and 401(k)s are powerful tools because they offer tax-free withdrawals in retirement. Contributing to Roth accounts during your working years (especially if you expect to be in a higher tax bracket in the future) can provide significant tax savings down the line.

4. Required minimum distributions (RMDs)

At age 73, the IRS mandates that you start withdrawing a certain amount from your tax-deferred accounts, known as RMDs. These withdrawals are taxed as ordinary income. Failing to plan for RMDs can lead to a sudden spike in taxable income, pushing you into higher tax brackets.

• Mitigate RMDs. To avoid being hit with a large tax bill, you can start taking strategic withdrawals before age 73, and you could perform Roth conversions. Both strategies would reduce the balance in your tax-deferred accounts before RMDs hit.
• Qualified charitable distributions (QCDs). If charitable giving is part of your retirement plan, consider using RMDs to make charitable donations. QCDs allow you to donate up to $100,000 per year directly from your IRA to a qualified charity, satisfying your RMD requirement while avoiding taxes on the distribution.

5. Health savings accounts (HSAs)

For those who have access to a health savings account (HSA) through a high-deductible health plan, this tool can play a key role in retirement planning. HSAs offer a triple tax advantage: Contributions are tax-deductible, growth is tax-free and withdrawals for qualified medical expenses are also tax-free.

• Saving for medical expenses. Medical expenses can be a significant cost in retirement. By building up an HSA balance during your working years, you can cover health care expenses in retirement without incurring taxes.
• Post-65 withdrawals. After age 65, HSA funds can be used for any purpose, though non-health care withdrawals are taxed as ordinary income (similar to an IRA).

The key to successful tax planning is understanding the variables and optimizing outcomes. By taking advantage of strategies like Roth conversions, tax diversification and tax-efficient withdrawal sequences, you can minimize your tax burden and make your savings last longer.

Dan Dunkin contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Building and preserving wealth for retirement requires both a smart investment plan and a thoughtful tax strategy. Many overlook or undervalue retirement tax planning techniques until it’s too late. These techniques can enhance your investment growth and stretch your dollars, allowing you to maximize your wealth and peace of mind.

With that goal in mind, below are five strategies we talk about with clients in our regular planning conversations:

1. Maximize your retirement and health savings contributions

Taking full advantage of the contribution limits for retirement and health savings accounts (HSAs) is a foundational tax strategy. You can do so by making the maximum contributions to your accounts — including traditional IRAs, 401(k)s and 403(b)s — while you are working. This allows you not only to increase your retirement savings but also to shield a portion of your income from taxes.

HSAs allow you to defer taxes while setting aside funds for future medical expenses. The 2024 limit is $4,150 for individuals and $8,300 for families. You can also make a $1,000 catch-up contribution to your HSA if you are 55 to 65 — or even beyond that, if you are still working and haven’t signed up for Medicare or started taking Social Security.

2. Make Roth contributions and consider Roth conversions ahead of sunsetting tax cuts

Making post-tax retirement contributions into Roth IRAs or Roth 401(k)s is a great way to save for retirement. If you can afford it, we recommend maximizing these contributions while you are working.

Roth IRAs can be a smart solution to protecting more of your wealth from taxes, and they can be especially beneficial right now. The stage is potentially set for tax hikes when the Tax Cuts and Jobs Act (TCJA) expires at the end of 2025. Converting all or a portion of traditional IRAs to Roth accounts now lets you pay taxes at today’s relatively low rates and enables you to continue securing future tax-free income and growth on those assets. Roth conversions can be an especially effective technique if you are currently retired with a relatively low income before you are required to take distributions from retirement accounts.

3. Defer distributions from retirement accounts and Social Security until age limits

If possible, build up enough funds in your taxable accounts while you are working so that you can defer withdrawing from your pretax retirement accounts until you are required to do so, which today is at the age of 73.

Likewise, if you are healthy, wait to collect Social Security benefits until at least your full retirement age, and if possible, consider waiting until 70. Your benefit payment will be higher the longer you delay your start date, which sets the base for the benefits you'll receive for the rest of your life.

4. Make charitable gifts with appreciated stock or QCDs

Charitable donations can offer considerable tax advantages while also enabling you to support meaningful causes. With proper planning, you can align philanthropy with your tax minimization objectives.

Charitable giving can directly reduce your taxable income but still offers benefits even after your earning years. For immediate deductions during retirement, consider making direct contributions to charities through channels like donor-advised funds and gifts-in-kind of appreciated shares.

You can also make qualified charitable distributions (QCDs) from IRAs to causes you care about. IRA owners aged 70½ or over can exclude up to $105,000 of QCDs from their gross income per year (or $210,000 per year if both spouses meet the age minimum). Starting at age 72 (or 73 if you turn 72 after December 31, 2022), you can also use QCDs from IRAs to lower the taxability of your required minimum distributions (RMDs).

5. Plan ahead to have a liquidity reserve for early retirement years

It is important to plan ahead for those early retirement years when you have no income from wages and before retirement account distributions are required. A smart tax strategy is to prepare those taxable accounts for withdrawals by ensuring your investment allocation is tilted toward liquid and preservation assets, ideally tax-free municipal bonds or dividend-paying stocks.

These investments will provide a stream of tax-efficient income as well as the ability to trim or sell positions without fear of market volatility dramatically reducing the value of your portfolio. It can be incredibly reassuring in early retirement years when you are feeling vulnerable from a loss of income to have a few years of reserve in portfolio assets primed for safety and liquidity for when you need it.

In addition, it can be helpful to work with a financial adviser who is mindful of investing and trading your portfolio in a tax-conscious manner. For taxable accounts, they should select investments that are tax efficient, with low turnover, and be mindful to actively harvest tax losses to offset capital gains to reduce your overall tax burden. Less tax-efficient investments are better held in retirement accounts, especially post-tax Roth accounts. In retirement, asset location can be as important as asset allocation.

Saving for retirement is as much about being disciplined to set aside funds and invest them well as being smart with tax strategies to further preserve your wealth. Of course, there are other strategies to save on taxes, like living in or moving to a tax-friendly state. As you consider retirement, it can give you great peace of mind to think early and often about saving, investment, and tax strategies so you can feel the most prepared as possible as you reach this milestone in your financial life.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Many Americans spend thousands of dollars each year on health care, even if they have good insurance. But there are ways to reduce the amount you spend on everything from elective procedures to prescription drugs.

Start by reviewing how much you have left to meet your deductible. The average amount that employees have to pay before most health insurance coverage kicks in has increased by 10% over the past five years and 53% over the past 10 years, according to KFF (formerly the Kaiser Family Foundation). 

The average deductible for workers with single coverage was $1,735 in 2023, and 31% had a general annual deductible of $2,000 or more. If you’ve reached your deductible or are close to it, schedule appointments and elective procedures by the end of the year, before a new deductible kicks in for 2025.

Even if your insurance company offers some level of coverage if you go out of the plan’s network, you’ll have lower co-payments on a lower negotiated rate if you choose in-network providers. You can save even more by comparing how much in-network providers charge for specific procedures. 

Employers and insurers are offering better tools to help you decide where to get care when you need it, says Regina Ihrke, managing director of health and benefits at WTW, a benefits consulting firm. Some employer health plans also offer one-on-one concierge services to help employees navigate their care options; by phone, a representative will walk you through your choices from providers covered by your insurance.

“Transparency tools have been around since about 2010, and now every carrier has them to at least show you what the range of the costs would be for certain procedures,” Ihrke says. The new generation of tools include quality measures in addition to cost data, she says. “The cheapest options may actually cost you more in the end because you may get misdiagnosed or have more readmissions.”

For example, Healthcare Bluebook, which is offered through some plans, lets you search by procedure to see the fair price in your area and look up cost and quality information for nearby doctors who perform the procedure. You’ll also see whether the provider falls in the top third, middle third or bottom third of quality ratings.

Other ways to make the most of employer and insurance benefits:

Take advantage of preventive care services. Even if you have a high-deductible health insurance plan, you likely qualify for many preventive care services, such as mammograms and colorectal cancer screenings, without having to pay the deductible or co-payments. 

Depending on your age, you may also be eligible to get vaccines for the flu, shingles and other diseases without having to pay the deductible or co-payments. Also, some services and medications for chronic conditions may not be subject to the deductible. Take advantage of these tests, screenings and programs without any cost to you.

Cash in on wellness benefits. Many employers offer additional benefits to keep their employees healthy. You may, for example, get a discounted gym membership, a reduced insurance premium or extra contributions to your health savings account if you take a health risk assessment and complete certain activities, Ihrke says. 

About 10% of employers offer lifestyle savings accounts, in which employees are given up to $1,000 to use for a variety of physical, mental or financial wellness expenses, such as a gym membership, a mindfulness resiliency app, nutrition counseling, financial wellness courses or student loan assistance. If you have access to these programs, make sure to use them by the end of the year.

Clear out your flexible spending account. An FSA allows you to set aside tax-free money from your paycheck to cover deductibles, co-payments and other out-of-pocket costs. And to use an FSA, you don’t need to enroll in a high-deductible health plan, as you do with a health savings account. 

But unlike HSAs, FSAs generally require you to use the money by December 31 of the plan year (or March 15 of the following year, if the plan offers a grace period); otherwise, you forfeit the unused balance. A study by the Employee Benefit Research Institute found that half of FSA contributors forfeited funds to their employers in 2022, with an average forfeiture of $441.

The Coronavirus Aid, Relief and Economic Security (CARES) Act of 2020 made it possible for FSA (and HSA) users to buy over-the-counter medications such as aspirin or acetaminophen without a prescription, says Rachel Rouleau, chief compliance officer at Health-E Commerce, parent brand to FSA Store and HSA Store, which sell products that qualify for FSA and HSA reimbursement. You can also use FSA money for ibuprofen, cough syrups, and allergy pills and sprays.

Other items that you can buy with FSA money include glasses, contact lenses, prescription sunglasses, broad-spectrum sunscreens, certain lip balms and sun protection moisturizers with an SPF of 15 or higher, first aid kits, acne medications, menstrual care products, hearing aids, acupuncture devices, health monitors, and deep-tissue pain relief devices. 

“The list of eligible FSA expenses has expanded in recent years to include a wide variety of clinical services, an extensive list of everyday essentials and several surprisingly eligible products,” Rouleau says. See a list of eligible expenses at https://fsastore.com/fsa-eligibility-list.

Pay less for prescription drugs

The Inflation Reduction Act also eliminated deductibles and co-payments for all recommended adult vaccines. And starting in 2025, Medicare Part D will have a $2,000 spending cap on out-of-pocket drug costs.

Websites such as GoodRx.com, SingleCare.com and Amazon Pharmacy can help you save money on prescription drugs, and more employers are incorporating cost-saving tools — such as Rx Savings Solutions and Scripta — into their pharmacy benefits. “It further directs members to additional cost savings,” says Chantell Sell, senior director in the pharmacy practice at WTW. Using these resources can help you find the lowest-cost pharmacy to buy the drug, coupons to reduce the cost or similar drugs that may cost less under your insurance.

“This can help people save quite a bit of money because prescription drug prices can vary by up to $100 between pharmacies — even between pharmacies in the same neighborhood,” says Charlene Rhinehart, a certified public accountant and personal finance editor at GoodRx. Using a coupon can help if you’re paying cash, and sometimes it can reduce the cost to less than you’d pay by going through your insurance plan instead, says Rhinehart. Other ways to lower your prescription drug costs:

Explore generic and alternative drugs. If you’re prescribed a drug that isn’t covered by your health insurance or that has high co-payments, ask your doctor whether there’s another drug that can serve a similar purpose but costs less under your plan. You may save a lot of money by switching to a generic drug. And even if no generic medication is available, there may be a “therapeutic alternative” — another name-brand drug that has similar effects — with better coverage from your insurance and lower co-payments for you.

“If your medication isn’t on the formulary, then in some cases there are generic versions or drugs within the same class that work the same, and they might be covered by insurance,” says Rhinehart. For example, several types of statins are prescribed to lower cholesterol and treat heart disease. 

“There are many different options within the drug class, so you may have a better shot at finding an affordable alternative,” she says. When you look up a drug on GoodRx, you’ll see a list of alternatives you can ask your doctor about.

Use a preferred pharmacy. Many drug plans have preferred pharmacies with lower co-payments than other in-network pharmacies. If you have a Medicare Part D prescription drug plan, you can use the Medicare Plan Finder to compare costs for your medications at several pharmacies in your area. If you and your spouse have different health plans, make sure you know the preferred pharmacies for each one because you may need to go to different pharmacies to get the best deals. Using your prescription plan’s mail order pharmacy may save you even more money.

Buy in bulk. If you take maintenance medications every month, it can cost less to buy them in larger quantities. For example, ordering a 90-day supply of your medications instead of a 30-day supply could save you money, Rhinehart says. Ask your pharmacist for other ideas to trim costs.

Find out about pharmaceutical assistance programs. Several types of programs can help you spend less on prescription drugs. People with low incomes who have Medicare Part D drug coverage may be able to save money on premiums and co-payments through the government’s Extra Help program, which was recently expanded to include those with higher income levels. You may also be able to save through a state pharmaceutical assistance program or state discount program. Many pharmaceutical companies have programs to help with the cost of drugs that aren’t covered by insurance or co-pay assistance programs. Check with the drug manufacturer or go to this Medicare page.

Manufacturers also sometimes offer co-pay cards for certain name-brand drugs that don’t have generic alternatives, Rhinehart says. These cards cover part or all of the costs that aren’t covered by your health insurance. They don’t have income requirements, but most are available only to people who have private health insurance. You can find these co-pay cards either on the manufacturer’s website or through GoodRx.

Check out new benefits for Medicare Part D. The Inflation Reduction Act of 2022 included several changes to make prescription drugs more affordable under Medicare Part D. It capped the cost of a monthly supply of insulin at $35, but not all Part D plans cover all types of insulin. Use the Medicare Plan Finder to find out what the plans available in your area cover.

Use a health savings account

You can stretch your health care dollars by taking advantage of a health savings account, and it’s not too late to sign up for an HSA and make contributions for 2024. You can contribute to an HSA in 2024 if you have an eligible health insurance policy with a deductible of at least $1,600 for single coverage or $3,200 for family coverage — whether you get your health insurance through an employer or on your own. Maximum contributions for 2024 are $4,150 for self-only coverage and $8,300 for family coverage, plus $1,000 if you are 55 or older. 

Many employers offer incentives to participate in an HSA, such as by matching contributions or contributing a fixed amount for all employees who have a high-deductible health insurance plan. Some employers provide HSA contributions for employees who participate in a wellness program or take a health risk assessment, Ihrke says.

Contributions to an HSA are pretax if you have a plan through your employer (or tax-deductible if you don’t have an employer plan), the money grows tax-deferred through the years, and you can withdraw it tax-free for eligible medical expenses at any time in the future; there are no use-it-or-lose-it rules. You can withdraw money from the HSA tax-free for out-of-pocket medical expenses, such as your deductible and co-payments, as well as your costs for vision, dental and hearing care, prescription drugs, and over-the-counter medications. 

Once you reach age 65, you can even use HSA money to pay premiums for Medicare Part B (and Part A, if you have to pay premiums for it), Part D prescription drug coverage, or a Medicare Advantage plan. You can also pay a portion of long-term-care insurance premiums with HSA money (the amount you can cover with HSA funds is based on your age).

You’ll get an even bigger tax benefit if you keep the money growing tax-deferred in the HSA for future health care costs. You have an unlimited amount of time to with-draw money for eligible expenses you incurred since you opened the account — you can even claim re-imbursement for expenses years after you paid them out of pocket. Just keep your receipts for the health care costs you paid with cash, and then you can withdraw the money tax-free at any time.

If you plan to keep the HSA money growing in the account for future expenses, make sure your investments match your time frame. Many people keep HSA money in the plan’s savings account and don’t realize that they may have a menu of mutual funds to choose from. 

If you plan to use money in the account for medical expenses soon, check out the HSA’s interest rates on savings, which can also vary significantly by administrator. “It’s shocking to me how low the interest rates being offered by some major providers are,” says Greg Carlson, senior manager and research analyst at Morningstar and coauthor of the firm’s annual HSA landscape study.

In addition to comparing investment options and interest rates, pay attention to fees, which can vary significantly among HSAs. A study by the Consumer Financial Protection Bureau found that some HSAs charged monthly maintenance fees, paper statement fees, outbound transfer fees and account closure fees. “This complex fee structure may obscure the true cost of the product, and the financial impact of these fees directly reduces the funds consumers can spend on health care expenses,” the report said. 

If your employer offers an HSA, look for ways to minimize the fees, such as by receiving online account statements and keeping a minimum balance to avoid or reduce fees. For example, Carlson says, some plans don’t charge a maintenance fee if you have a certain account balance.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Adequately planning for retirement is becoming a growing concern for Americans, and many worry they’ll have to be millionaires before they can stop working.

A recent study from Northwestern Mutual found that adults across the U.S. believe they will need $1.46 million to retire comfortably. That’s a 53% increase compared to the $951,000 many believed they would need back in 2020.

Unfortunately, the amount Americans actually have saved is dropping. According to the same study, the average American had $89,300 saved in 2023. That number has dropped to $88,400 in 2024. So what does this mean when it comes to long-term health care costs, and what can you do now to avoid financial stress in your golden years?

Before you can formulate a plan to attack health care costs in retirement, it’s important to understand the federal programs in place and how much coverage they provide.

Federal programs and their coverage

Once you turn 65, you become eligible for Medicare. Medicare is a federal insurance program that is meant to help offset health care costs in retirement. Part A covers in-patient hospital stays, hospice care and some home health care. Part B covers certain doctor’s visits, outpatient care, medical supplies and preventive services. Part D helps cover the cost of prescription drugs. Although there are many parts to Medicare, it doesn’t cover everything — forcing some people to enroll in supplemental insurance programs known as Medigap plans. However, the plans may only cover a certain amount depending on how much money you have saved.

The Employee Benefit Research Institute found a 65-year-old man enrolled in a Medigap plan with average premiums will need to have $106,000 saved just to have a 50% chance of having enough to cover premiums and average prescription drug costs. That number jumps to $128,000 for women. This difference in cost is likely due to the fact that women tend to live longer than men. To have a 90% chance of covering health care costs in retirement, the average man will need $184,000 in savings; women will need $217,000. According to the CDC, the average life expectancy for women is 79; for men, it’s 73.

Based on these findings, it’s safe to say health care costs will take a decent chunk from your retirement fund — but don’t let these numbers paralyze you. There are small steps you can take now to help you become more financially secure in retirement.

1. Maintain a healthy lifestyle.

It's obvious advice, but it bears repeating. If you make an effort to stay active and eat healthy, you'll likely spend less on health care than someone who ignores diet and exercise and has other unhealthy habits such as smoking.

2. Boost your retirement savings.

Generally speaking, the sooner you start saving for retirement, the better off you’ll be. If possible, increase or max out contributions to your employee savings plan.

The IRS also allows adults over the age of 50 to make annual catch-up contributions to certain accounts:

• 401(k). You can contribute an extra $6,000 each year.
• 403(b). Employees with at least 15 years of service can contribute up to $6,000 annually.
• IRA. For either a traditional IRA or Roth IRA, you can contribute up to $1,000 more each year.

3. Open a health savings account (HSA).

If your employer offers a health plan that is HSA-eligible, consider enrolling. As part of the plan, you can contribute to a health savings account (HSA) without a tax penalty. Your contributions are made pre-tax. As a bonus, your savings grow tax-free, and you can withdraw money tax-free as long as it is used for qualified medical expenses.

4. Consider your retirement age.

The average age of retirement is 62 for most Americans. While three extra years of retirement may sound good, there are some serious drawbacks. During those three years, you won't be able to contribute to employee-sponsored savings plans. You won't have a steady income. You also won't be eligible to enroll in Medicare until you are 65. That means you’ll be paying out of pocket for health insurance for three years.

5. Live like you are already retired.

An easy way to boost your savings is to cut back on your spending. Start by envisioning your retirement and look for costs to cut. If that vision involves downsizing your home or cooking healthy meals at home, begin making those changes now. Limit the career clothing you buy. Consider purchasing a more economical car. These changes will save you money right away. They will also make the transition into retirement easier.

Unfortunately, doctor visits and medication costs aren’t the only health care expenses you’ll need to account for. Another major factor you’ll need to consider is where you’re going to live as you age — especially if you become cognitively impaired. Data from Genworth found that in 2023 Americans could spend up to $75,504 annually for in-home care, $64,200 for assisted living care and up to $116,800 for nursing home care. Those costs alone could eat through your retirement savings in just a few years. Fortunately, there are several long-term insurance plans that can help offset these costs.

Here are some common plans:

Long-term care insurance. This type of insurance is specifically designed to cover the costs of long-term care services. Policyholders pay premiums in exchange for coverage, which can help cover home care, assisted living or nursing home care expenses.

Hybrid life insurance with long-term care rider. Some life insurance policies offer a long-term care rider, allowing policyholders to access a portion of the death benefit to cover long-term care expenses if needed. These policies provide both life insurance coverage and long-term care benefits.

Annuities with long-term care benefits. Certain annuity products include long-term care benefits that can help cover expenses if the annuitant requires long-term care. Annuities with long-term care riders may offer a lump-sum payment or monthly benefit to cover care costs.

Medicaid. Medicaid is a joint federal and state program that provides health coverage to eligible low-income individuals, including coverage for long-term care services. Eligibility criteria vary by state, but typically income and asset requirements must be met to qualify.

Employer-sponsored plans. Some employers offer long-term care insurance as part of their benefits package. These plans may provide coverage for employees and their eligible family members at group rates.

Accounting for long-term health care is a crucial part of retirement planning. There are a number of steps you can take to help grow your savings now, and there are some insurance options for covering long-term care expenses.

As you’re planning, consider your current health status, cost of care, health insurance coverage, financial resources, family support and personal preferences. Taking these factors into account can help you make an informed decision that best suits your needs.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Health Savings Accounts (HSAs) have surged in popularity, driven by their tax benefits and potential to offset the expenses associated with high-deductible health plans.

Data show there are approximately 40 million HSAs now compared to 11.8 million in 2013. These accounts reportedly hold more than $159 billion as of mid-2025, representing a more than 500% increase from approximately ten years ago.

However, last year, the Consumer Financial Protection Bureau (CFPB) stated that hidden costs lie beneath the surface of these accounts, which can undermine the tax advantages that HSAs offer.

“Health savings accounts are promoted for the tax benefits that chip away at the price tag of health care,” CFPB former director Rohit Chopra said in a release, adding, “Many consumers do not realize the fees, switching costs, and low-interest yields that will come with the accounts.”

The watchdog agency released a report highlighting several costs and fees incurred by many HSA holders, shedding light on challenges faced by consumers trying to manage healthcare finances and taxes.

Here's more of what you need to know.

Note: Since this article was first written, the CFPB ooerates at reduced capacity due to various changes and cuts made amid the second Trump administration.

HSA tax benefits

Health Savings Accounts offer tax benefits that can help individuals save money on healthcare expenses.

First, contributions to HSAs are tax-deductible, meaning individuals can reduce their taxable income by the amount contributed to the account.

Additionally, funds within the HSA can grow tax-free through investments, and withdrawals for qualified medical expenses are also tax-free.

These tax advantages make HSAs a powerful tool for those with high-deductible health plans (HDHPs) to manage healthcare costs while maximizing savings.

HSA contribution limits for 2025 and 2026

However, the IRS limits contributions to your health savings account each year. The amount you can contribute depends on whether you have single or family coverage and are over 55 years old.

• For 2025, Individuals have an HSA annual contribution limit of $4,300, and the limit for family coverage is $8,550.
• The IRS has also announced the 2026 HSA limits. For self-only coverage, the limit rises to $4,440, and for family coverage to $8,750 a year.

Still, the CFPB has argued that hidden costs, many of which people are unaware of, can diminish an HSA’s potential tax benefits.

Hidden HSA costs

1. Fees. According to the CFPB, one of the hidden costs of HSAs is the array of fees imposed by financial service providers. These fees include monthly maintenance, paper statements, outbound transfers, and account closure fees. The agency said these charges can eat into the funds allocated for healthcare needs, directly reducing the benefits of tax savings afforded by HSAs.

2. Portability. Another issue with HSAs is the lack of fund portability, which the CFPB said adds another layer of cost for consumers. According to the agency, employers often choose the financial service provider for employees' HSAs, leading to situations where consumers are captive to their current provider due to expensive exit fees. This lack of flexibility can hinder people from accessing better terms and lower fees elsewhere.

However, it's important to keep in mind that the HSA belongs to you, meaning the account and the money in it are yours — even if you change jobs and your HSA funds do not expire.

3. Yields. Low-interest yields offered by many HSA providers are another hidden cost. Despite recent increases in interest rates, most providers offer interest rates well below 1% and sometimes even as low as 0%. The CFPB noted that, as a result, consumers may end up paying more in fees than they earn in interest, diminishing the overall value of their HSA accounts.

It's worth noting that the American Bankers Association Health Savings Account Council expressed disappoinmtnet with last year's CFPB's findings. Kevin McKechnie, council executive director said in a statement that many of the fees mentioned in the report no longer exist or are not incurred by consumers.

The council believes that the CFPB report misrepresented the industry and didn't capture the value of owning an HSA.

HSA costs: Bottom line

In any case, it is important for account holders to understand fees, lack of portability, and low interest yields associated with HSAs.

It's also worth noting that much of the power of an HSA is realized when you’re able to contribute a meaningful amount each year and, ideally, leave those funds invested for a significant period of time.

So, if you can’t afford to contribute much, because of, for example, tight household finances, other priorities like debt repayment, or just the higher out-of-pocket costs that come with a high-deductible health plan, the tax benefits of an HSA can shrink significantly.​

Additionally, to qualify for an HSA, you must have a high-deductible health plan. That means trading lower monthly premiums for higher out-of-pocket costs. That structure can be challenging for people with chronic conditions, ongoing prescriptions, or families with ongoing medical needs.

If you find yourself pulling from your HSA for regular health bills, you can miss out on tax-free investment growth. The compounding aspect is a large part of the HSA’s appeal.​

During open enrollment season in particular, having this and other knowledge about HSA pros and cons can help you make informed decisions about managing your healthcare expenses and maximizing tax savings.

Related

• 2025 HSA Contribution Limits Rise Again
• Do You Really Know What Your HSA Can Do For You?
• 2026 HSA Limits Are Set: What to Know Now

Maxing out your health savings account (HSA) contributions can significantly lower your tax bill, but using those funds for non-eligible items could get you into trouble with the IRS. And the agency may challenge certain purchases, even when consumers have a doctor’s note to justify them. 

The fact is that sometimes, a physician's note isn't enough to make certain products eligible The IRS is warning taxpayers that some marketing campaigns misrepresent what is HSA-eligible and what isn’t.

Here’s what you need to know to avoid tax penalties from the IRS when it comes to HSA-eligible items.

Non-eligible HSA expenses 

Food and wellness expenses are rarely considered HSA-eligible, despite the “food as medicine” movement that has swept the nation. Food items related to special diets, even when suggested by a doctor, can draw scrutiny from the IRS. 

The same is true for other wellness items, such as fitness trackers and gym memberships. But that hasn’t stopped some companies from suggesting otherwise.

“Taxpayers should be careful to follow the rules amid some aggressive marketing that suggests personal expenditures on things like food for weight loss qualify for reimbursement when they don’t qualify as medical expenses,” said IRS commissioner, Danny Werfel in a release.

• Notes from doctors “based merely on self-reported health information” don’t qualify as legitimate documentation for making food and wellness products (or services) HSA-eligible.
• To make what would normally be considered a personal expense (weight loss programs, nutritional drinks, etc.) HSA-eligible, the expense must be “related to a targeted diagnosis-specific activity or treatment.”

Note: The same rules apply to a flexible spending account (FSA). 

HSA-eligible expenses

To avoid scrutiny from the IRS, consumers should skip receiving a doctor’s note from companies selling wellness items online. Instead, patients can see their doctors, whether in person or via telehealth and request a letter of medical necessity (LMN) and prescription for wellness items related to the treatment of their health conditions. 

• For example, doctors may recommend a gym membership to treat hypertension.
• Doctors may write an LMN for a fitness tracker for a patient who suffers from obesity.
• Supplemental nutrition drinks may be prescribed to patients with low appetites as a result of a chronic illness.

Of course, simply requesting an LMN from your doctor doesn’t guarantee you’ll receive one. But if you do have a legitimate doctor’s note, it is possible that the full cost of your purchase will not be considered HSA-eligible. 

For food and beverages, only the portion of the expense that exceeds the cost of a product that “satisfies normal nutritional needs” is deductible. For example, if an enhanced drink costs $12, but a similar drink that merely satisfies normal nutrition needs costs $8, only $4 is deductible.

Using an HSA for fitness or weight loss 

The IRS says taxpayers should not be afraid to use their HSA funds for qualifying expenses, but they should make sure they follow the rules and keep good records. Keep copies of LMNs, prescriptions, and all receipts for eligible items, whether you made purchases with your HSA debit card or received a reimbursement. 

Does HSA spending trigger an audit? The IRS doesn’t monitor how you spend your HSA funds throughout the year, but that doesn’t mean they won’t ask for proof that your expenses were eligible. And if your tax return contains unrelated IRS audit red flags, your risk for an HSA audit could increase. 

• If the IRS determines your expenses are not HSA-eligible, the ineligible expenses will be subject to income tax and a 20% penalty (if you are under age 65). 
• Also, make sure you don’t exceed HSA contribution limits each year. 
• If you made excess contributions, the IRS says you should withdraw the excess amount before the tax deadline (April 15, 2024) to avoid a 6% penalty.

HSA rules

What are the rules for an HSA when you turn 65? If you are 65 or older, you can take distributions for any reason without paying the 20% penalty. However, distributions for expenses that are not HSA-eligible are still subject to ordinary income tax. However, if you enroll in Medicare, you will no longer be eligible to make HSA contributions.

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Another retailer has entered the telehealth market with the launch of Walgreens Vrtual Healthcare, a service that offers chat visits for $33 and video visits from $36 to $75 to be paid out-of-pocket.

Currently available in nine states, you can consult with a doctor or nurse practitioner about common ailments such as acne, seasonal allergies, urinary tract infections, birth control and emergency contraception, and quickly receive a diagnosis and prescription, Walgreens said. Most visits are available to patients 18 to 64 years old.

Insurance for the virtual visits will not be accepted at this time but it can be used to cover prescription costs, Walgreens said. The plan, however, is to eventually accept insurance, flexible spending accounts and healthcare savings accounts, the retailer added.

At present the service is being offered in California, Florida, Georgia, Michigan, Illinois, Nevada, North Carolina, Ohio and Texas. Walgreens said it intends to roll it out to other states shortly. Urgent care service is not yet available in Michigan, it added.

Telehealth gains momentum

Other newcomers to the telehealth space include Amazon and Costco.

Earlier this month, Amazon’s One Medical unit launched an on-demand virtual health care service priced at $9 per month or $99 annually for Prime members, with no additional costs for receiving care. Prime members can also add up to five additional members for $6 per month or $66 annually.

And in late September, Costco announced a partnership with healthcare marketplace Sesame. Costco members can receive discounted pricing on a range of services, including virtual primary care for $29 and virtual mental health therapy for $79.

How it works

To get started using Walgreens Virtual Healthcare, you'll need to visit the company's dedicated website, complete an online intake form and make a payment. From there, you'll be connected with a clinician and can begin a chat.

Walgreens said that if you need treatment, you can either arrange to pick up your prescription in a store or have it delivered.

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The growth in popularity of Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) has grabbed the attention of three of the biggest delivery service apps — DoorDash, Instacart and Uber.

DoorDash and Instacart each recently announced plans to accept HSA and FSA payments for eligible items at select merchants this year, and Uber said it plans to begin accepting FSA payments in 2024.

“From over-the-counter medication and home healthcare equipment to COVID-19 test kits and family planning items, HSA and FSA payments allow consumers to conveniently and affordably shop for the products they need from the merchants they trust,” said Fuad Hannon, DoorDash vice president of New Verticals, said in making the announcement.

To get started with the new feature, DoorDash users need to:

• Go to the DoorDash Account tab and navigate to the Payment Methods section. 
• Select HSA/FSA under the Add Payment Method and input your information.
• You can now shop for eligible items. When you’re ready to checkout, you’ll see the HSA or FSA debit card payment option, where you should select ‘use card.’
• For more information, visit Using your HSA or FSA debit card on DoorDash.

Also, now through November 24, DoorDash customers can get 30% off eligible health orders of $25 or more — up to $12 off — at select stores by using the promo code HEALTH30 at checkout. 

How to use HSA and FSA cards at Instacart

Instacart plans to begin to accept FSA and HSA cards at checkout on December 4. 

The company has aggregated FSA- and HSA-eligible items across its platform into a single virtual storefront, the FSA & HSA Shop. Eligible FSA and HSA items will be labeled, the company added.

Instacart also said it plans to launch the Instacart Health Wallet in coming months. The wallet will allow customers to apply certain benefits to eligible items in their shopping carts in a single order.

Uber to accept SNAP, FSA in 2024

Uber announced in its third-quarter earnings results that, starting next year, SNAP recipients will be able to buy groceries on the Uber Eats app. The company said it will also begin accepting Managed Medicaid and Medicare Advantage plan benefits, including FSA Cards, Flex Cards and relevant waiver payments.

HSA and FSA limits for 2024

Meanwhile, the IRS recently announced record-high HSA contribution limits for 2024, including a $4,150 limit for individuals, as Kiplinger recently reported. The FSA contribution limit for 2024 is $3,200. For help with the differences between HSAs and FSAs, check out Health Savings Account vs. Flexible Spending Account: Which Is Better for You?

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Over the past several years, health savings accounts (HSAs) have grown in both interest and popularity — so much so that there were $104 billion in HSA assets held among 35.5 million accounts at the end of 2022, according to Devenir Research. It’s easy to understand why this interest is on the rise, as HSAs can be a great solution to help cover eligible out-of-pocket medical costs. However, while the interest is high, the reality is that many individuals may not fully understand all that HSAs have to offer — especially when it comes to saving for their future, too.

With employers increasingly offering high-deductible health plans with an HSA option to their employees, you may already have an HSA or perhaps are considering opening one. So, as we enter open enrollment season, now presents a great time to make sure you really understand how your HSA can benefit you both today and in the future. Here are a few things to keep in mind.

HSAs can be used to pay for health care expenses in retirement

An HSA is a savings account that eligible individuals can open and contribute to on a pre-tax basis, effectively reducing their taxable income. As long as there are funds in the account, it can be used to pay qualified medical expenses today, tomorrow and throughout retirement years.

However, according to Voya research, while the general understanding that HSAs can be used to pay for health care expenses in retirement has increased noticeably (from 43% in 2020 to 55% in 2023), just over half of Americans know that HSAs can be used for health care expenses in retirement.(1)

Due to the trend of rising health care costs and the fact that health care needs generally increase as one ages, a big contributor to the potential retirement savings gap is the ever-increasing cost of health care. Consider the dynamic of retirees who depend on their savings for a portion of their retirement income. As they age, their savings balances are drawn down.

Additionally, the longer retirement lasts, the greater the likelihood that health care needs will increase. So, when it comes down to it in retirement, many individuals simply don’t have enough savings to cover health care expenses and daily living expenses. Enter HSAs, which are uniquely positioned to potentially help lessen the retirement health care savings gap. Not only can HSAs offer flexibility on how the accounts are funded, what the funds can be used for and when, they offer triple tax benefits, including pre-tax contributions — and the potential for both tax-free growth and tax-free withdrawals.

As employees work toward their retirement, they’ll be able to make pre-tax contributions and tax-free withdrawals as needed for HSA-qualified expenses. If funds are used for non-eligible expenses, they are taxed and penalized an additional 20%.

However, what many people may not realize is that once you reach retirement age at 65, HSA funds can be used for non-medical expenses without being assessed a 20% penalty. Therefore, you can use your HSA to pay for general living expenses — like housing, food or travel, for example. However, these distributions will be taxed much like any normal distribution from a retirement account, like an IRA or 401(k).

And even in retirement, if you decide to spend your HSA dollars on qualifying medical expenses, you will still enjoy tax-free distributions — providing flexibility to spend your money how you want. Just keep in mind once you turn 65 and are enrolled in Medicare, you are no longer eligible to contribute.

HSA funds can be an investment opportunity

According to Voya research, only 26% of working Americans know that HSAs can be used as an investment vehicle — a powerful benefit of these savings solutions. Similar to lineups available in typical workplace retirement accounts, like a 401(k), once you reach a certain threshold in your account, your HSA funds can be invested. While the threshold varies by HSA plan, some plans may require only an HSA balance of $1,000 to begin investing your funds.

So, HSAs can serve as an important vehicle with a potential to grow over the long term. Unless you plan to use your HSA money for planned expenses in the near future, investing can give your money an opportunity to grow over time, but as with any investment, there are risks; make sure to fully explore those risks before choosing to invest your balance.

HSAs can be used for emergency health care savings

According to Voya data, we know that a lack of emergency savings can put one’s retirement at risk, as employees without adequate emergency savings are 13 times more likely to take a hardship withdrawal from their retirement account.(2) And, when faced with a short-term, unexpected need — such as an emergency trip to the hospital — some people may choose to dip into this account to cover the expense.

It’s important to understand that removing funds from a retirement plan may not be an option, and if it is, it should not be done lightly. The interest in growing an emergency fund is becoming more and more critical for individuals today — so much so that recent Voya data has found more than half (55%) of working Americans are more likely to stay with their current employer if they offer a workplace emergency savings plan.(3)

Fortunately, the dollars in your HSA can be used for unplanned or emergency medical expenses as long as they are eligible. All HSA withdrawals used to pay for qualified medical expenses (even if unplanned) are tax-free. Plus, if you are able to, you can choose to cover a medical bill out of pocket and then be reimbursed tax-free for that expense in the future when you then need those funds. This strategy is another way funds in an HSA can serve as emergency savings. Just make sure to hold on to your receipts to verify all distributions.

Your employer may have more to offer than you think

In today’s world, individuals are often faced with competing priorities when it comes to divvying up their paychecks and making decisions about where to save. The important considerations of retirement, health care, paying off debt and the desire to build an emergency fund are all factors to consider when thinking about one’s future. As a result, resources such as health savings accounts, which help offset the burden of medical costs, or student loan debt support and tools for building emergency savings continue to grow in popularity as employers’ “wellness benefits.”

So, as we approach open enrollment season, now presents an opportune time to not only ensure you understand the benefits of your workplace benefits and savings but to also ensure you understand the other optimal resources that might be available to you from your employer.

1) Results of a Voya Financial Consumer Insights & Research survey conducted with Morning Consult between March 9-15, 2023, among n=500 working Americans age 18+ who have both an employer-sponsored retirement plan and a medical/health plan, featuring n=188 health savings account owners.

2) Voya Financial internal data (Oct. 2020).

3) Based on the results of a Voya Financial Consumer Insights & Research survey conducted June 12-13, 2023, among 1,004 adults aged 18+ in the U.S., featuring 483 Americans working full time or part time.

related content

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• No Long-Term Care Plan? Here’s What to Do About It
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

For those looking to attain financial freedom by investing, it’s rarely a get-rich-quick affair. Sure, there are those who have made a fortune from one massive cryptocurrency sale, but that’s not the norm. Most successful investors create a long-term plan and make adjustments as the years go by and opportunities arise.

When you start investing for your future, the possibilities can seem overwhelming. While it’s important to maintain diversity in your investments, some options are going to work better for your individual needs. Here are three strategies to keep in mind as you embark on your path to wealth accumulation and financial security.

1. Start small

It’s pretty common knowledge that the earlier you can start investing, the longer your assets have to grow or provide income. The Catch-22 comes into play from the fact that many people in their 20s don’t have a lot of expendable cash available for investing. They want to start building wealth but don’t see a way they can afford to do so.

If that sounds familiar, it’s time to look into investments that are minimal or creative. Buying a $2 million apartment complex might be a fanciful notion. But most working people can find a way to defer at least 3% of their income into an IRA or 401(k). If their employer is matching that deferral, it’s a no-brainer.

But what if someone in their 20s or early 30s wants to pursue their wealth-building activities beyond a retirement account? If limited capital is available, one option is real estate syndication. This process involves a central firm that pools together outside investors. 

There are a variety of online platforms out there that allow individuals to invest as little as $5,000 in a property. Of course, it’s essential to do thorough research to ensure the platform is reputable and has reasonable fees and returns. 

If you don’t want to risk an anonymous online company, you could form a partnership with several trusted individuals instead. Pooling your resources together could allow access to a higher tier of property and provide better returns. The bottom line is to focus on what you can do with your cash vs what you can’t. 

2. Use your knowledge base to your advantage

With enough time and dedication, you can probably learn enough to effectively navigate any investment category. However, if your life experience has led to in-depth knowledge of a certain industry, it would be foolish not to take advantage of it.

For example, not very many people would dip their toes into investing by speculating in grain futures. This asset class involves agreeing to sell grains such as wheat or soybeans for a set price at a later date. It’s a volatile process that requires the speculator to account for global climate trends, pests and other agricultural, economic and political factors. The war between Russia and Ukraine caused a spike in wheat prices globally, just as an example. Compared to the relatively simple process of buying a single-family home and renting it out, the intricacies can be daunting.

But what if you grew up in a large-operation family farm partnership? Even if you don’t end up working in agriculture, you’re still likely to possess a solid grain production knowledge base. Compared to someone whose knowledge of soybeans ends at identifying edamame in a stir-fry, grain futures speculation might be a viable investment option.

You can always branch into other areas later to diversify your portfolio. When it comes to building an investment foundation that will provide long-term income and wealth, however, look to your personal history. Industry knowledge and contacts can give you a big head start vs learning a new investment strategy from scratch.

3. Don’t neglect tax considerations

Acquiring wealth is one thing; keeping as much of it as possible is another. If you’re truly investing for the long haul, you should consider how to retain what you’ve earned.

For those who invest heavily in the stock market, it’s tempting to adopt a trade-heavy, wheeler-dealer approach. Besides the fact that frequent traders tend to have lower success due to emotional factors, there are tax ramifications to frequent trades. 

If you’re chasing the quick profit on volatile stocks, chances are you aren’t holding on to many assets for at least a year. If you trade a stock after holding it for less than a year, any gains will be taxed at your regular income tax rate. Depending on your income level, that can be as high as 37%. Holding on to stocks for at least a year means your earnings will be taxed at a long-term capital gains rate, which maxes out at 20%.

Choosing where to put your money is another instance in which you need to consider taxes. If you have a few thousand dollars that you are considering putting into an IRA, have you considered a health savings account instead? 

If you’re eligible to contribute to an HSA, you can invest those funds just as you would with an IRA. The benefit is that HSAs are tax-free on contributions, growth and qualified distributions. With an IRA, you will be taxed either when you contribute or when you take out funds later. It’s the same process of contributing money to be invested, but the tax differences between the HSA and IRA make all the difference. 

Create an individual but diversified plan 

Two of the biggest rules for investing are to invest according to your goals and not to put all your eggs in one basket. Those sentiments might sound obvious and trite, but keeping them at the core of your investment strategies will serve you well in the long run.

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

To help you understand what is going on in the healthcare industry and what we expect to happen in the future, our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest...

If you’re worried about healthcare costs, for either your business or your personal situation, a raft of money-saving shifts are coming to the healthcare sector, promising to ease the strain on overburdened hospitals, while reducing expenses for patients and employers, who foot a lot of the bill.

One key to controlling future medical costs: moving more care to outpatient settings, meaning the patient goes home after a procedure instead of spending one or more nights recuperating in the hospital. It’s probably what most people want to begin with, and it can save a bundle vs a long stay in the hospital, especially with hospitals short-staffed. 

Outpatient care will grow 18% by 2033, well ahead of the expected 2% rise in inpatient care. More surgeries will become outpatient as surgical techniques and post-surgery treatment are refined, reducing the need for hospitalization. More joint replacements, for instance, with patients going home to begin recovery and physical therapy. 

Other conditions for which treatment will be offered much more often in outpatient settings are dementia, cancer, cardiovascular problems like chronic heart failure, diabetes and lung disease. Telemedicine is also poised to mushroom after catching on in the pandemic. A decade from now, remote visits will account for 26% of all appointments with doctors.

Advances in medical technology also promise to curb healthcare costs. Laparoscopic and other “keyhole” surgeries are being used more widely, enabling faster, less expensive recoveries. The growing use of surgical robots and improvements in robotics are expanding the array of minimally invasive surgeries. 

Cheaper alternatives to blockbuster drugs should provide more cost relief. Biosimilars, which closely mimic original drugs, are proliferating. For example, a biosimilar version of AbbVie’s blockbuster arthritis treatment Humira hit the market earlier this year at a lower cost. Other biosimilars targeting popular drugs are coming. Eventually, they could lower prescription costs similarly to how generics have done. 

The downside of better medical treatments: more people tend to use them, driving up overall health spending. The growing array of obesity drugs, for example, could improve the lives of millions and cut medical costs associated with obesity. But they figure to be very popular and will fuel a burst of additional drug spending.

There’s more competition coming to the healthcare market, too. Basic care is especially ripe for cost containment as new players offer inexpensive clinics to treat routine, nonemergency issues. Amazon Clinic, for instance, is now operating in all 50 states, offering low, fixed prices for 30 common conditions. Walmart Health operates in five states and treats a range of medical, behavioral and dental issues

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

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Health savings accounts (HSAs) offer a tax-advantaged way to save money to pay for certain medical expenses. Your HSA contributions are tax-deductible, so they help reduce your taxable income.

But contributions to your health savings account are limited each year by the IRS, so the amount you can contribute depends on whether you have single or family coverage and are over age 55.

With that in mind, the IRS released the HSA maximum contribution amounts for 2024, which are higher than ever. How much will you be able to contribute to your health savings account this year?

Let's start by taking a look at what an HSA is.

What is an HSA?

An HSA is a financial tool that combines tax advantages with savings to pay for certain healthcare expenses. The account allows individuals with high deductible health plans to set aside pre-tax dollars for qualified medical expenses.

This is often seen as a triple tax advantage, combining tax-deductible contributions, tax-free growth, and tax-free withdrawals for eligible healthcare costs.

HSA contribution limits for 2024

For 2024, individuals under a high deductible health plan (HDHP) have an HSA annual contribution limit of $4,150. The HSA contribution limit for family coverage is $8,300. Those amounts are about a 7% increase over what you could contribute last year.

If you are 55 or older, the catch-up contribution has been $1,000. That still applies for 2024. You can see the difference between the 2023 and 2024 HSA maximum contribution amounts in the chart below.

Contribution Limits for Health Savings Accounts

(*Individual means self-only coverage.)

The 2024 HSA contribution limits represent an increase from the previous year's amounts of $550 for family coverage and a jump of $300 if you have individual coverage. That is a lot more money to help cover qualified medical expenses.

What are qualified medical expenses? Qualified medical expenses are generally expenses incurred when dealing with a medical diagnosis, treatment, or preventive care. When you withdraw funds from your health savings account to pay for qualified medical expenses, the withdrawal is tax-free — the money you use for the expenses is not considered taxable income.

Generally, for purposes of your HSA, qualified medical expenses typically include payments for doctor visits and hospital visits and stays, prescription medications, dental and vision care, mental health services, preventive care, and some medical equipment and supplies.

HDHP requirements for 2024

Keep in mind that to be eligible to contribute to an HSA, you have to be enrolled in an HDHP.

• For 2024 tax purposes, an HDHP is a health plan with an annual deductible of at least $1,600 for single coverage or not lower than $3,200 for family coverage.
• The annual out-of-pocket expenses cannot exceed $8,050 for self-only coverage or $16,100 for family coverage.

How an HSA works: Tax benefits of an HSA

You can open an HSA when you are enrolled in an HDHP.

• Sometimes your employer will designate which health plans they offer that qualify as high deductible health plans.
• Your contributions are made with pre-tax dollars, and some employers contribute to your HSA on your behalf in addition to your contributions.
• You usually receive a debit card for your HSA account, making it easier to pay out-of-pocket medical expenses.

A key tax benefit of an HSA is that your contributions are tax-deductible, so you can potentially reduce your taxable income by the amount you contribute.

Additionally, you can invest the money once you reach a certain amount in your HSA. It grows tax-free because the interest and gain you earn are tax-free, as are withdrawals made for qualified medical expenses. That’s why it’s often said that HSAs have a triple tax benefit.

Do HSA funds expire?

An HSA provides a convenient way to pay for medical expenses. And your health savings account belongs to you, so it’s portable. That means the account and the money in it are yours — even if you change jobs.

And no, your HSA funds do not expire. The money you put into your health savings account stays there until you spend or invest it.

HSA limits 2025?

The IRS recently announced the HSA contribution limits for 2025.

While the 2025 HSA contribution limit increases are not as significant as for 2024, they still offer an opportunity to work on your retirement savings strategy and potentially reduce your tax burden.

For more information see HSA Contribution Limits Rising Again.

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Flexible spending accounts, or FSAs, allow employees of companies that
offer the accounts to set aside pre-tax money from their paychecks for out-of-pocket healthcare or dependent care expenses. Almost 25% of FSAs require account holders to spend all the money by the end of the plan year, forfeiting their funds if they miss the deadline, according to the Employee Benefit Research Institute. 

The rest offer some wiggle room, with 42% of FSAs permitting employees to roll over a certain amount of unused funds to the following plan year and 36% offering a grace period of 2.5 months to use up the money. For FSA plan years that ended December 31, 2023, and have a grace period, you have until March 15, 2024 to spend the funds. And depending on your plan, you may have until March 31 to file claims for reimbursement of eligible purchases that you made before your FSA’s spending deadline.

Spending down your FSA

If your health care FSA has a grace period and you still have 2023 dollars to spend, review your options among qualifying purchases. 

Health insurance co-payments and deductibles and prescription drugs are common ways to spend FSA money. But many other products qualify, too. “FSA eligibility is much broader than most people realize,” says Rachel Rouleau, chief compliance officer at Health-E Commerce, the parent brand of FSA Store, a seller of FSA-qualifying products. “FSA Store estimates that the average household spends $1,600 a year on everyday health products that are FSA-eligible.”

What are FSA eligible purchases?

Don’t overlook items that have become newly eligible in the past few years. 

Thanks to a 2020 law, over-the-counter medications such as pain relievers, cough suppressants, allergy medicine, and heartburn medications qualify, as do certain menstrual-care products. 

As a result of the pandemic, the IRS has also deemed eligible at-home COVID-19 tests and personal protective equipment including face masks, hand sanitizer and sanitizing wipes. More recently, a 2022 Food and Drug Administration ruling opened the door for consumers to buy hearing aids without a prescription and (just as with prescription hearing aids) you can use FSA money to buy them.

You can get a range of medical equipment and devices with FSA funds, from canes, crutches and walkers, to blood-pressure monitors, support braces for injured muscles or joints, and CPAP machines and accessories. 

First-aid kits, bandages and thermometers also qualify, as does a sunscreen with an SPF of 15 or higher — that also includes facial moisturizers and lip balms containing SPF. And don’t forget that vision and dental expenses such as prescription sunglasses, eyeglasses and contact lenses (as well as lens solution and cases), reading glasses, and orthodontic braces and aligners are all eligible. 

For more ideas, check out the FSA Store's list of FSA-eligible items. If you find yourself scrambling to buy FSA-qualifying items because you overfunded your account and you expect to have similar medical expenses in the coming years, consider dialing back the amount you contribute to your FSA.

Related content

• Flexible spending account vs. dependent care credit
• How Much Can You Contribute to Your HSA and FSA in 2024?
• How to save in an HSA and an FSA at the same time

A lot of people are wondering about HSA contribution limits these days. Millions of workers are being asked to pick their health benefit options for 2023 during an open enrollment period. Other HSA owners are wondering if they can contribute more to their account for 2022 without going over the line. Either way, knowing the maximum HSA contribution limits for the year in question is a must.

If your employer offers a health savings account option as part of its benefits package, don't dismiss it out of hand just because you're not familiar with how they work. After doing a little research, you might discover that an HSA is the way to go. For many people, HSAs offer a tax-friendly way to pay medical bills. There's an "above-the-line" deduction available for contributions to an HSA, money put in an HSA by your employer is excluded from gross income, earnings are tax free, and there's no tax on distributions if you use the funds to pay qualified medical expenses. You can also hold on to the account when you're no longer working for your current employer and use it tax-free for medical expenses at a different job or even during retirement. All-in-all, HSAs can be a great tool for covering your health care costs.

But there are a handful of limitations and requirements that you need to know about, and they're adjusted annually for inflation. They apply to the amount you can contribute to an HSA for the year, the minimum deductible for your health insurance plan, and your annual out-of-pocket expenses. If you or your health plan are not in compliance with the restrictions in place for any particular year, then you can say goodbye to the HSA tax savings for that year.

HSA Contribution Limits

Your contributions to an HSA are limited each year. For 2023, you can contribute up to $3,850 if you have self-only coverage or up to $7,750 for family coverage. For 2022, the limits are $3,650 and $7,300, respectively. Since the inflation rate has been climbing lately, the annual adjustment of these limits pushed them significantly higher from 2022 to 2023 than what we've seen in recent years.

If you're 55 or older at the end of the year, you can put in an extra $1,000 in "catch up" contributions for both 2022 and 2023. However, your contribution limit is reduced by the amount of any contributions made by your employer that are excludable from your income, including amounts contributed to your HSA account through a cafeteria plan. If you're looking to put more money in an HSA for 2022, you have until the due date for 2022 federal income tax returns, which is April 18, 2023.

The table below shows how the contribution limits have increased over the past few years. You can see how much more the maximums jumped for 2023 when compared to the increases for other years.

If you contribute too much to an HSA (including any contributions from your employer), not only will you lose the tax benefits for the excess amount, but you might also have to pay a 6% excise tax on the overage each year the excess contribution remains in your account.

Fortunately, there's a way around the 6% penalty if you go over the applicable contribution limit. You can avoid the additional tax if you withdraw (1) the excess contributions from your HSA by the due date (including extensions) of your federal income tax return for the year the contributions were made, and (2) any income earned on the withdrawn contributions and include it as income on your tax return for the year you withdraw the contributions and earnings.

Health Plan Minimum Deductibles

To contribute to an HSA, you must be covered under a high deductible health plan. For 2023, the health plan must have a deductible of at least $1,500 for self-only coverage or $3,000 for family coverage. Again, thanks to higher inflation, these amounts are quite a bit higher than the 2022 figures – $1,400 for self-only coverage and $2,800 for family coverage.

The following table shows the minimum deductible amounts for 2019 to 2023.

Limits on Out-of-Pocket Expenses

The health plan must also have a limit on out-of-pocket medical expenses that you're required to pay. Out-of-pocket expenses include deductibles, copayments and other amounts, but don't include premiums. For 2023, the out-of-pocket limit for self-only coverage is $7,500 or $15,000 for family coverage. According to the IRS, only deductibles and expenses for services within the health plan's network should be used to determine if the limit applies.

As the table below indicates, the health plan out-of-pocket expense limits for HSAs have increased each year from 2019 to 2023 to account for inflation. That includes a whopping $450 jump for self-only coverage and a $900 increase for family coverage from 2022 to 2023. Those increases are significantly higher than what we've seen in recent years.

Inflation has made everything from gas to eggs more expensive, and health care is no exception: Costs rose 8.2% in 2021, the biggest jump since 2018, according to the Business Group on Health. Besides being affected by overall inflation, health care prices were pressured by a surge in claims from consumers who scheduled appointments and procedures they had put off during the pandemic. Those factors continued to drive up costs in 2022. For the 2023 health insurance plans that workers will choose during the upcoming open-enrollment period, premiums are set go up some more, rising up to 8%, according to the Segal Group, a human resources and benefits consultant.

New services offered by employer sponsored plans

A lot of large employers are providing better access to therapy and other well-being benefits in response to concerns about the effects of the pandemic on employees’ mental health. 

Many employers also plan to offer a suite of virtual care services in 2023, ranging from lifestyle coaching to diabetes management. More than 90% of large employers plan to offer tele–mental health services, and 77% plan to provide those services at little or no cost to employees. 

Impact of increasing costs

Employers are also looking for ways to drive down costs of cancer treatment, which is one of the top three factors pushing health care costs higher. Half of employers plan to add providers that are recognized for providing top-quality cancer care, and 11% plan to cover multi-cancer early-detection blood tests in 2023, according to the BGH survey.

Most of the costs of expanded benefits will be borne by the boss. Employees of large companies will be responsible for 22%, on average, of their total health care premium costs in 2023, unchanged from 2022 and 2021, according to a survey by human resource firm Mercer. 

Employers are increasingly tying health insurance premiums, deductibles and other costs to salaries, which means higher-paid employees may pay more for health care. According to the BGH, 37% of employers implemented this type of cost-sharing in 2022, with a modest increase expected in 2023. 

 It may be another year before we see all the cost increases triggered by inflation, says Suni Patel, Mercer’s chief actuary for health and benefits. “Because health plans typically have multiyear contracts with health care providers, we haven’t felt the full effect of price inflation in health plan cost increases yet,” he says. He expects the full impact of inflation to hit in 2024. 

At the same time, though, employers need to make benefits competitive to attract and retain employees in a tight labor market, says Tracy Watts, Mercer’s national leader of U.S. health policy. Along those lines, employers are also beefing up ancillary benefits, such as paid leave for parents and eldercare services. 

How to choose the right plan 

 Picking the right insurance plan—whether it’s just for you or for you and your family—will come down to your health needs. While in recent years an increasing number of employers have been offering high-deductible health plans—sometimes as the only option—Watts says the number of employers offering only these plans has decreased going into 2023. “It goes back to affordability,” Watts says. “Not everyone wants to pay for their care out of pocket when needed.” 

As a result, you may see more choices this year, including one offering low deductibles, such as a preferred provider organization (PPO) plan. Co-payments, coinsurance and deductibles may be lower in PPO plans, but they typically come with higher premiums than high-deductible plans. 

A high-deductible plan often comes with a health savings account, which makes it more palatable. HSAs are funded by contributions from you and, in some cases, your employer. In addition to allowing you to save for out-of-pocket costs, such accounts come with some major tax perks: Contributions are made on a pretax basis (or they’re tax-deductible, for HSAs that aren’t sponsored by an employer), and money in an HSA grows tax-deferred. Withdrawals are tax-free for qualified medical expenses. As a bonus, you can contribute to the account until you retire, then use the funds to cover medical expenses during retirement. 

To qualify for an HSA in 2023, you must sign up for a high-deductible health plan with a minimum deductible of $1,500 for self-only coverage or $3,000 for family coverage. Maximum contribution limits for the year are $3,850 for self-only coverage or $7,750 for family coverage. Workers who are 55 or older by the end of the year can put in an extra $1,000 in catch-up contributions. However, your contribution limit is reduced by any amount your employer contributes. So if, for example, your employer kicks in $500 annually to your HSA, the maximum you can contribute will be $3,350 for single coverage or $7,250 for family coverage. 

How to compare healthcare plans

 Even if you’re leaning toward selecting the high-deductible option, run the numbers for each plan. To make an apples-to-apples comparison, add up the monthly premium payments that would be deducted from your paycheck and the deductible you or your family would have to meet; for the high-deductible plan, subtract your employer’s HSA contribution. 

Your employer may provide a comparison tool through its open-enrollment portal to make the task of comparing plans easier. The tool typically allows you to run scenarios with estimates of various claim amounts for the year. From there, it should show you an estimate of your total expense. 

When you run these comparisons, Patel says, “you’re estimating your risk tolerance and your ability to take on additional risk.” For example, some workers may choose a high-deductible plan because its lower premium will result a larger paycheck, recognizing that they’ll pay higher out-of-pocket expenses until they meet their deductible. 

Next, look at the provider networks to see if anything has changed. Employers are making adjustments to their networks to keep costs down, Patel says. Many are trying to shrink the number of hospitals and doctors in the plan network without sacrificing quality of care. If your current doctors are no longer in network—and you’re not inclined to switch providers—look up your plan’s out-of-network costs. Typically, in-network care is cheaper because the insurance company has negotiated rates with the provider. Going out of network means you are subject to a provider’s non-insurance rate. 

Under the Affordable Care Act, preventative care services, such as annual physicals, blood pressure screenings, and flu and shingles vaccines, should be provided at no out-of-pocket costs. For more on preventative services—and what to do if you’re charged for them—see How to Appeal an Unexpected Medical Bill.

Finally, make sure you understand all of your insurance terms. More than three-fourths of Americans don’t know the correct definition of coinsurance, according to a recent Forbes Advisor survey. Coinsurance is what you’ll pay for a service after your deductible is met. Typically, your insurance company picks up 80% of the tab, and you pay the remaining 20%. This differs from a co-payment, which is usually a flat fee that could be as low as $25. 

Once you’ve selected a medical plan, you need to choose your vision and dental plans. You usually have a choice between a high-cost and a low-cost dental plan, but usually just one vision plan is offered. High-cost dental plans may pick up more of the tab for major dental work, such as crowns or non-adult orthodontics. 

If you’re not sure which plan is right for you, review the dental work you’ve had in the past year. Past explanation of benefit (EOB) forms should be available through your current provider’s online insurance portal. For vision, read in detail how much your insurance pays for new glasses and contact lenses. Typically, your annual eye exam is covered at no cost to you. 

Finally, just as with your main medical providers, double-check to determine whether your current dentist and optometrist are in your new insurance network. If not, you may need to switch to a new provider. 

In some cases, you may decide it’s worth going out of network to keep your current provider. For example, if your current optometrist is tracking developments related to diseases such as glaucoma, starting over with new tests may be more trouble than it’s worth. Ask the insurer how much your out-of-pocket costs would be, remembering that you can use funds from an FSA or HSA to pay for them. 

How to manage prescription drug costs 

 Another big driver of the rise in health care premiums is the cost of prescription drugs—a major concern among large employers, according to the BGH survey. 

Pharmaceutical companies are raising prices charged to private health insurance plans in anticipation of lower reimbursements for some drugs covered by Medicare. Under a provision in the Inflation Reduction Act, starting in 2026, Medicare will be allowed to negotiate prices for the 10 highest-cost drugs covered by Medicare Part D. The number will increase to 15 Part D drugs in 2027, 15 Part B and Part D drugs in 2028, and 20 Part B and Part D drugs in 2029 and beyond. 

If your out-of-pocket costs for prescription drugs increase, there are ways to keep your expenses in check. Make a list of your prescriptions, and dive into how they would be covered under a new plan. Typically, coverage is split into categories, with generic drugs requiring the lowest co-payment. Co-payments for nonpreferred, name-brand drugs are usually higher, and some drugs may not be covered. 

Keep in mind that it may be less expensive to pay cash at a big discount retailer, such as Walmart, than to fork over the co-payment your insurance plan requires. You may be able to save even more by using drug manufacturer coupons provided by GoodRx.com or through your doctor. If the costs of your current drugs will rise steeply with a new plan, ask your doctor for a list of lower-cost alternatives. Then go back and rerun your cost analysis. 

How to sign up for COBRA or an ACA plan

 If you recently left your job, you have two options for health insurance: Get coverage under COBRA (the federal law that lets you keep health insurance coverage through your former employer for up to 18 months) or buy a plan on the government’s marketplace. If you choose COBRA, you won’t have to change providers, but it comes at a steep cost. 

When you sign up for COBRA, you’re responsible for both the employer and employee portion of your health insurance premiums, plus an administrative fee of about 2%. To estimate your COBRA costs, you need to know how much your employer subsidized your health care. You can find this information on the COBRA election notice your employer provides or through your human resources department. 

A less-pricey option may be an Affordable Care Act plan, available through HealthCare.gov or your state’s health care exchange. And thanks to the Inflation Reduction Act, enhanced subsidies for these plans are expected to stay until 2025. Those who are self-employed and adults who are no longer eligible to stay on their parent’s insurance plans—the cut-off is age 26—will also benefit from the expanded subsidies.

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Too many young professionals are leaving Uncle Sam an enormous tax gratuity. How are they doing this? By not taking full advantage of the triple tax benefits of a health savings account. I've yet to meet anyone who wants to pay more taxes. Many do not mind paying their fair share, but they do not want to leave a tip.

An early to mid-career professional with a high-deductible health plan (HDHP) could be missing out on six figures of lifetime tax savings. With open enrollment for health insurance around the corner, it’s time to understand and utilize the benefits of your HSA.

What Qualifies as a High-Deductible Plan?

For 2023 a high-deductible health plan is defined by the IRS as one with a deductible not less than $1,500 for self-only coverage or $3,000 for family coverage, and for which the annual out-of-pocket expenses do not exceed $7,500 for self-only coverage or $15,000 for family coverage. Healthy young professionals are prime candidates for an HDHP. That is because many of them need minimal medical care; they visit the doctor annually and have no or few drug prescriptions.

Because their medical expenses are low, money contributed to a health savings account can be used to generate significant tax savings while also building a large health care nest egg.

What Are the Triple Tax Benefits of HSAs?

Contributing to a health savings account provides a triple tax benefit:

• First, anyone who contributes to an HSA receives a tax deduction. In 2023, individuals can set aside $3,850, and families can contribute up to $7,750. Any employer contributions are included in these limits, though. So, if your employer contributes $1,000, as a family, you can contribute $6,750.
• Next, if you invest your contributions — instead of sitting in cash — all the growth is tax-deferred.
• And lastly, when you pay for qualified medical expenses, distributions are tax-free.

One Couple’s $160,000 in Tax Savings

Here is an example of how a young professional couple can take advantage of an HSA:

Leia and Han will be 35 years old in 2023. They are married, both working, and have an adjusted gross income (AGI) of $225,000. They are covered by an HDHP under a family plan through Leia's employer.

Let us assume that Leia and Han contribute the maximum amount annually to their HSAs from 2023 until retirement 30 years later. We will also assume that their contribution limits increase by 1% a year. The account earns 5% a year, and they utilize the $1,000 catch-up contribution starting at age 55.

By age 65, Leia and Han would have well over $500,000 saved in their HSA. Between their yearly tax savings (federal 24%, atate 5%, and FICA 7.65%) on contributions and foregone taxes on the growth of the investments, they will have saved over $160,000 on taxes.

Let me say that again: They will have saved $160,000 in taxes by taking full advantage of their health savings account.

In this case, the triple tax benefits of pre-tax contributions, tax-deferred growth and tax-free withdrawals can be powerful. Unfortunately, most do not utilize their HSA to its full potential. According to the Employee Benefit Research Institute, average annual contributions were less than $2,000 per account, over half of account holders withdrew funds, and only 9% of accounts held investments other than cash.

How to Make the Most of HSAs

To maximize the benefit of HSAs, I recommend the following steps:

• Contribute the maximum amount to an HSA every year.
• Pay your medical expenses out of pocket, without tapping into the HSA to let it grow ad to possibly even use it as a retirement fund.
• Invest your HSA contributions into a diversified portfolio of stocks and bonds.
• Allow compounding to work its magic.

As a young professional, time is on your side. Days become months, and months become decades. Do not delay saving into your HSA. Start saving and growing your wealth while also prioritizing your health.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

There's almost always a tax angle whenever you face a major turning point in life, even if it seemingly has nothing to do with taxes. That's because taxes are always lurking in the background when life's biggest moments arrive. Going to college, getting married (or divorced), buying a home, retiring, and even dying – they all can impact your taxes. So, it should come as no surprise that there are even potential income tax implications for women who make the difficult decision to have an abortion. But now that Roe v. Wade has been overturned, new questions are popping up about those abortion-related tax consequences.

While the tax laws haven't changed since the U.S. Supreme Court reversed Roe v. Wade, women want to know if they can still take advantage of the tax breaks that help pay for an abortion. Some employers are also promising to cover the travel costs of workers who cross state lines to get an abortion. Will that increase the employee's taxable income? And what about contributions to organizations either supporting or opposing a woman's right to an abortion – can you still deduct those donations?

While taxes certainly aren't front of mind for women considering an abortion, these tax issues will ultimately impact the financial well-being of many women who decide to have the procedure. They may also affect the ability of advocacy groups on both sides of the abortion debate to persuade lawmakers to support their position. Other tax questions may bubble up as the legal landscape around abortion evolves but, hopefully, having answers to some of the current tax questions surrounding abortion will help women considering an abortion chart a course that works best for them.

Will the Costs of an Abortion Still Be Deductible as a Medical Expense?

If you itemize deductions on Schedule A (i.e., don't claim the standard deduction), you can deduct unreimbursed qualified medical expenses for yourself, a spouse and your dependents to the extent the total amount exceeds 7.5% of your adjusted gross income. However, only the costs of a legal abortion are qualified medical expenses for purposes of this tax deduction.

Before the repeal of Roe v. Wade, abortions were legal in all 50 states and the District of Columbia – although states could impose certain restrictions on the procedure. As a result, the costs of an abortion were generally deductible regardless of where in the country they were performed (assuming the other requirements for the medical expense deduction were satisfied). However, the legality of abortions will now be determined on a state-by-state basis – unless a federal law protecting abortion nationwide is enacted or a constitutional amendment doing the same is adopted, which in both cases is highly unlikely any time soon given the political polarization in the country right now. Therefore, going forward, expenses for an abortion will be deductible if the procedure is performed in a state where it's legal, but not deductible if it's performed in a state where abortion is illegal. (And note that determining if an abortion is legal in any particular state – or to what extent it's legal – may be tricky in certain states, especially when the use of abortion pills is considered.)

If a woman travels from one state to another to receive a legal abortion, some of her travel expenses may also be deductible in addition to the direct costs of the procedure (e.g., the doctor's fee). For instance, you can deduct amounts paid for transportation to and from an out-of-state abortion clinic. This includes bus, taxi, train, or plane fare. If you use your own car to travel for an out-of-state abortion, you can deduct your actual out-of-pocket expenses – such as the cost of gas, oil, and tolls – or you can elect to use the standard mileage rate for medical travel. (For 2022, the medical mileage rate is 18¢ per mile for the first half of the year and 22¢ per mile for the second half.) Expenses for travel within a single state to receive a legal abortion may also be deductible.

Hotel expenses can also be deducted, but not more than $50 per night. However, a woman traveling to get a legal abortion can also deduct lodging expenses for a person traveling with her. For example, if a woman's partner is traveling with her, up to $100 per night can be deducted for lodging.

Meals while traveling aren't deductible unless they're part of the inpatient care at a hospital or similar medical facility.

Can You Still use HSA, FSA, or HRA Funds to Pay for an Abortion?

Millions of Americans use health savings accounts (HSAs), flexible spending accounts (FSAs), and Health Reimbursement Arrangements (HRAs) to pay for medical expenses. There are several tax advantages that go along with these accounts – such as tax-free withdrawals if the money is used to pay for qualified medical expenses.

The definition of a qualified medical expense for HSA, FSA, and HRA purposes is the same as the definition for purposes of the medical expense deduction. As a result, tax-free payments from HSAs, FSAs, and HRAs are only allowed for legal abortions. And, as discussed above, that's now going to depend on state law.

Transportation and lodging expenses (up to $50 per person for lodging) can also be paid for with HSA, FSA, or HRA funds. So, women traveling from a state that doesn't allow abortions to one that does can still take advantage of tax-free withdraws from these accounts to pay for abortion-related travel expenses.

Will You Have Taxable Income if Your Employer Covers Your Travel to Another State for an Abortion?

Since the Supreme Court invalidated Roe v. Wade, many businesses across the country have promised to cover travel expenses for employees who go to another state to get a legal abortion. However, depending on how this is implemented, the employee could end up with additional taxable income.

If abortion-related travel expenses are covered by the employer's health insurance plan, then the employee would only be taxed on any amount that exceeds the limits on qualified medical expenses for purposes of the medical expense deduction. So, for example, any hotel expense greater than $50 per night per person that's covered by the employer's health plan could be treated as taxable income for the employee. Covered automobile transportation expenses that are greater than the actual travel costs or the medical standard mileage rate could also be treated as taxable income.

There may be limits on an employer's ability to cover travel expenses through its health plan, though. Several states currently restrict coverage for abortion-related expenses, and more states could join the list. Plus, covering abortion-related travel costs through a workplace insurance plan only helps workers who are eligible for and actually enrolled in the plan – which means some female employees will be left without the intended benefits. As a result, some employers might try to cover their employees' abortion-related travel costs by simply reimbursing workers for their expenses (likely requiring receipts from the employee to substantiate the amount). While the limits associated with coverage through a health care plan wouldn't necessarily apply, the reimbursed amount would be treated as taxable income for the employee.

Having taxable income shouldn't necessarily dissuade an employee from taking advantage of a reimbursement plan, but she should realize in advance that it could increase her income tax bill.

Can You Deduct Donations to Pro- or Anti-Abortion Organizations?

The Supreme Court certainly reignited the abortion debate when it overturned Roe v. Wade. For years to come, there will be intense efforts to persuade lawmakers across the country to either protect abortion options or eliminate them – especially at the state level. Individuals will surely reach out to their own representatives to voice their opinions, but most of the concentrated pressure will come from organizations set up to advocate and lobby for one side or the other. And, of course, those organizations will need money – much of which will come from contributions by ordinary Americans.

But will individual donations to the advocacy organizations still qualify for a charitable tax deduction now that Roe v. Wade was reversed? Yes. As long as the IRS authorizes the organization to accept deductible donations and you satisfy all the deduction's other requirements (including that you itemize deductions on your tax return), then you can still write-off your donations to these groups. The fact that a constitutional right to an abortion is no longer recognized doesn't change how the deduction works or who can claim it.

Tax Tip: Use the IRS's online Tax Exempt Organization Search tool to see if an organization is eligible to receive tax-deductible donations.

State Tax Changes After Roe v. Wade

Keep an eye out for state tax law changes where you live, too. For example, since Roe v. Wade was overturned, the Georgia Department of Revenue announced that it will recognize any unborn child with a detectable human heartbeat as eligible for the state's dependent exemption. That exemption is equal to $3,000 for each unborn child.

Other states may provide other tax breaks for unborn children, pregnant women, or others as a result of the Supreme Court's action.

Health insurance options are confusing at best, and often employees are overwhelmed by what to select when they start a job or during open enrollment. While a high-deductible health plan, or HDHP, can sound a little scary, it just means that you pay a lower premium per month but a higher annual deductible for medical care. How high? In 2022, the deductible is at least $2,800 for a family and $1,400 if you’re single.

One advantage to a high-deductible health plan is that it comes with the option to save money in an HSA. An HSA, or health savings account, is a triple tax-advantaged account where you can contribute money pre-tax, allow it to grow tax-free, and then take it out without paying any taxes on it as long as you’re using it for a qualified medical expense.

Don’t Confuse HSA with FSA

While HSA and FSA may sound similar, they’re very different accounts with different rules. The FSA, or flexible spending account, can be used for any type of health insurance plan, whereas an HSA is only used with a high-deductible plan. While both the HSA and FSA account may be offered through your employer, the HSA can go with you if you switch employers or retire.

Flexible spending accounts have limits each year on how much you can roll over to the following year, and as such are intended to be used for medical expenses within the year. For your health savings account, you can choose not to withdraw any amount in that year and all the money will roll into the following year and beyond.

Save Those Receipts

While you can roll money over from year to year in your HSA, you’ll need to keep track of each medical expense to later withdraw the money as a qualified expense.

Save those receipts! The IRS determines what qualifies as a qualified medical expense, and if your withdrawal amount doesn’t qualify, you’ll be hit with a tax penalty. Keep track of your medical bills, receipts for expenses and other documents so that you can withdraw the exact amount that you spent in order to avoid the penalty and take the money out tax-free. Another thing to keep in mind is that those same expenses you wish to take out from your HSA can’t be taken as an itemized deduction on your taxes that year.

How steep are the tax penalties? There’s a 20% tax on any withdrawal amount that is not used toward a qualified medical expense. There is some good news – the IRS has an exception for no additional tax on distributions from an HSA after you become disabled, turn 65, or if you die.

Using Your HSA as an Investment Strategy

One major advantage of the health savings account is that you’re putting money in pre-tax, allowing it to grow tax tree, and then withdrawing it tax-free as long as you have a qualifying medical expense. These tax savings, combined with the investment potential of the account, can add up over the years. One investment strategy for your HSA is to max out the amount you can contribute each year. In 2022, the current limits are $3,650 for self-coverage and $7,300 if you have family coverage.

If your employer matches contributions, take advantage of the match. You do need to account for the employer match, in that it does reduce the amount that you’re able to contribute. Take the amount your employer contributes to your HSA and subtract it from your maximum contribution amount to determine how much you can contribute each year.

Keep in mind that HSAs are not subject to required minimum distributions like an IRA or 401(k), so there is not a set amount that you need to take out each year once you hit 72.

It’s always best to talk through your investment strategies with a financial adviser who can look at your entire financial situation and help you to determine the best course of action for your specific needs.

Please note, the information provided on this website is for informational purposes only and investors should determine for themselves whether a particular service or product is suitable for their investment needs. The content on this website is not intended to provide tax, legal or accounting advice, and you are advised to seek out qualified professionals that provide advice on these issues for your individual circumstances.

Financial planning and Investment advisory services offered through Diversified, LLC. Securities offered through Purshe Kaplan Sterling Investments, Member FINRA/SIPC Headquartered at 80 State Street, Albany, NY 12207. Purshe Kaplan Sterling Investments and Diversified, LLC are not affiliated companies.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Health savings accounts (HSAs) have grown in popularity since the COVID-19 pandemic caused millions of Americans to worry about getting sick. A recent industry report from Devenir reveals that the number of new HSA accounts increased by 8% last year, and this trend is only expected to continue. By the end of 2024, there will likely be more than 38 million HSAs, with assets topping $150 billion. It’s easy to understand why HSAs have increased in demand throughout the pandemic, since they are a great solution to help cover unexpected medical costs — like an unplanned hospital stay.

But HSAs are more powerful than most people realize. For example, Voya research reveals that only 2% of individuals are aware of the key attributes of HSAs.(1) With employers increasingly offering high-deductible health plans with an HSA option to their employees, chances are you already have an HSA or perhaps are considering opening one. Whether you are a pro when it comes to HSAs or just using one for the first time, we all can find value to reviewing ways that we can realize the full potential of these powerful savings, spending and investing vehicles.

Read these 10 tips to help maximize the benefits of your HSA.

Tip #1: If you switch jobs, your HSA comes with you

The pandemic-era trend known as the “Great Resignation” has led to a record number of people voluntarily quitting their jobs as many are changing course for a variety of reasons — increased compensation, greater flexibility or better workplace benefits, to name a few. In fact, a record 4.5 million Americans quit their jobs in March, according to the U.S. Department of Labor. Therefore, if you fall into this category and are considering switching jobs, there’s no need to worry about losing any of the hard-earned dollars you contributed to your HSA. If you leave your job (for whatever reason), your HSA comes with you — since you, not your employer, own the account.

Tip #2: You can change your HSA contributions at any time

Typically, when most people think about their workplace benefits, they may have “flashbacks” to their employer’s open enrollment period. For many, open enrollment can be a stressful time, having to consider all of your needs and making the right choices for workplace benefits for the following year. Interestingly, Voya research reveals that the majority of American workers (72%) indicated they would rather service their car, visit the dentist or prepare for tax season instead of reviewing their workplace benefit options.

Now, while you do need to enroll in an HSA during open enrollment, deciding how much to contribute from each paycheck is not something you need to stress over. What do I mean? While most employers will usually offer digital tools or calculators to help you estimate your health-related expenses for the upcoming year, at the end of the day, it’s still just an educated guess. A great feature of HSAs is that you can change how much you contribute at any time during the year. You don’t need a qualifying event — like getting married or switching jobs — to make changes, which is a typical requirement for most other workplace benefits. That’s a big relief and one less thing to worry about during open enrollment.

Tip #3: HSAs offer triple tax advantages

Perhaps the biggest benefit of an HSA is the triple tax advantages it offers: 1) contributions are pre-tax and reduce your taxable income; 2) your HSA contributions and any earnings grow tax-free; and 3) when used to pay for eligible medical expenses, HSA withdrawals are tax-free.

HSA contribution amounts are capped each year by the IRS. For 2022, the HSA contribution limits are $3,650 for individuals and $7,300 for family coverage. Individuals who are 55 or older are also eligible to make an additional $1,000 catch-up contribution. To help adjust for rising inflation, the IRS recently announced that it was boosting HSA contribution limits in 2023 — with the HSA contribution limit increasing to $3,850 for individuals and $7,750 for family coverage.

Tip #4: Your HSA dollars are not ‘use it or lose it’

It’s not uncommon for people to confuse HSAs with their cousin, flexible spending accounts, or FSAs. While their names might sound similar, the rules that govern these accounts are quite different. One of the biggest drawbacks surrounding FSAs is the “use it or lose it” rule. In most cases, you must spend all the tax-free funds you put aside in an FSA before the end of each plan year, or risk losing the money.

People often mistakenly think the same rule applies to HSAs. However, unlike an FSA, your HSA balance carries over each year, which can add up over time.

Tip #5: HSAs can double as emergency health care savings

The ripple effect of the pandemic shined a spotlight on a troubling reality: Most working families are not financially prepared to cover an emergency. Industry research shows that roughly 4 in 10 Americans would struggle to cover a $400 emergency expense. Faced with a short-term, unexpected need — such as a trip to the hospital — many people often dip into their retirement savings. In fact, Voya’s own customer data reveals that employees without adequate emergency savings are three times more likely to take a loan from their retirement plan.(2)

Fortunately, the dollars in your HSA can double as an emergency savings account. All HSA withdrawals used to pay for qualified medical expenses (even if unplanned) are tax free. Plus, you can choose to cover a medical bill out of pocket and then be reimbursed tax-free for that expense in the future. This strategy is another way HSAs can serve as a potential emergency savings vehicle for eligible health-related expenses. Just make sure to hold on to your receipts to verify all distributions.

Tip #6: HSA funds can be an investment opportunity

Once you reach a certain threshold in your account, your HSA funds can be invested. These investment options are similar to line-ups available in typical workplace retirement accounts, like a 401(k). And you don’t need a large HSA balance to begin investing the funds. In many instances, you only need an HSA balance of $1,000 or more. However, this threshold varies by HSA plan, so check with your employer.

Unless you plan to use your HSA money for planned expenses in the near future, investing can give your money an opportunity to grow over time. For example, if you invested the 2022 HSA individual contribution limit of $3,650 in your account every year for 10 years and didn’t use any of the funds, and your account earned an overall 6% of interest each year over that time period, you would end up with about $51,000. While you would have contributed $36,500 yourself, the remaining $14,500 would come from investment earnings.

Like with any investment, it’s important to remember there is always risk. That being said, HSAs can serve as an important vehicle to help grow your future savings over the long term. Plus, with inflation at a 40-year record high, investing your HSA dollars is another option to potentially protect the value of your hard-earned money and make it work harder for you in the future.

Tip #7: Your employer can help grow your HSA

To encourage participation in high-deductible health plans with an HSA, it’s not uncommon for employers to offer incentives or matching contributions. For example, some will offer their employees $100 just for enrolling in an HSA. Plus, they may offer additional contributions throughout the year as the employee visits their doctor for an annual check-up, completes a biometrics screening or participates in other financial wellness programs, for example.

It’s not required that employers offer incentives or matching contributions to help supplement their employees’ HSA funds, so make sure to check with your HR team. But if available, taking advantage of potential “free money on the table” is a smart way to help grow your HSA.

Tip #8: No required minimum distributions for HSAs

A required minimum distribution, or RMD, is an IRS-mandated amount of money that a retiree must withdraw each year from a traditional IRA or an employer-sponsored retirement account, like a 401(k). Recently, this topic has generated headlines, with lawmakers in the House overwhelming passing The Securing a Strong Retirement Act of 2022, or “SECURE 2.0.” In addition to other provisions aimed at helping American workers save for retirement, the bill proposes increasing the age to 75 when a retiree must withdraw RMDs.

While this is certainly good news, considering the current RMD age is 72 (and that was only recently increased), HSAs do not require minimum distributions — another benefit of this powerful savings vehicle. Therefore, retirees can use their HSA funds to help supplement their future retirement savings and withdraw their money when they need it. Plus, if their HSA funds are invested, it has the potential to keep growing well into their retirement years.

Tip #9: Use your HSA dollars how you want in retirement

When you reach retirement age at 65, HSA funds can be used for non-medical expenses without being assessed a 20% penalty. Therefore, you can use your HSA to pay for general living expenses — like housing, food or travel, for example. However, the distributions will be taxed like any normal distribution from a retirement account, like an IRA or 401(k). But, if you decide to spend your HSA dollars on qualifying medical expenses, you will still enjoy tax-free distributions.

The good news is that you now have greater flexibility to spend your money how you want in retirement.

Tip #10: HSAs can outlive their owners

When it comes to estate planning, taxes are something all of us should carefully consider to help ensure as much of our life savings goes to the people we love versus the IRS. Fortunately, HSAs can be transferred to spouses without any tax implications. Your spouse can also continue using the HSA funds for qualifying medical expenses and will receive the same tax-advantaged treatment.

1) Based on findings from an online survey conducted by Voya, in partnership with Russell Research, among 315 U.S. Consumers currently enrolled in an employer-sponsored health plan fielded from Sept. 2 – Sept. 6, 2020

2) Voya Financial internal data (Oct. 2020)

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

A health savings account is a tax-advantaged account designed to help cover out-of-pocket health care expenses. If you’re the account holder, your spouse and dependents may also use the HSA, even if they’re not covered by your medical plan. In 2022, you can contribute up to $3,650 if you have individual health insurance or up to $7,300 for family coverage. If you’ll be 55 or older at the end of the year, you can put in an extra $1,000 in “catch up” contributions.

More than 80% of large employers currently offer an HSA to their employees, according to a recent survey by benefits consultant Willis Towers Watson, but not everyone is eligible to contribute to an HSA. In order to participate, your health insurance plan must offer a high-deductible plan. Typically, the monthly premiums for a high-deductible plan are lower, but you’ll pay more out of pocket before insurance coverage kicks in. For 2022, the health plan must have a deductible of at least $1,400 for self-only coverage or $2,800 for family coverage.

The health plan must also have a limit on out-of-pocket medical expenses that you are required to pay. Out-of-pocket expenses include deductibles, co-payments and other amounts, but they do not include premiums. For 2022, the out-of-pocket limit for self-only coverage is $7,050; it’s $14,100 for family coverage. According to the IRS, only deductibles and expenses for services within the health plan’s network should be used to determine whether the limit applies.

The Benefits

The tax advantages of HSAs are threefold: You can contribute to them on a pretax basis, your savings will grow over time tax-free, and withdrawals are tax-free as long as they are used to cover qualified medical expenses.

HSAs also offer a lot of flexibility. Unlike a flexible spending account for health care, an HSA is not a “use it or lose it” account—the funds won’t disappear if you don’t use them by the end of the year. In fact, you’ll get a bigger benefit from an HSA if you use other cash to pay for current out-of-pocket medical bills and allow the funds in the account to grow. Many HSA plans allow you to invest all or a portion of your contributions in mutual funds, and that offers the potential for more long-term growth than you’ll get if you put all of your contributions in a money market fund or savings account. One strategy is to invest enough money in a low-risk account to cover your current year’s health insurance deductible and invest the rest in mutual funds for longer-term expenses.

Typically, account holders who contribute to HSAs through payroll deductions make regular, fixed contributions throughout the year. However, you’re allowed to change contribution amounts as long as they don’t exceed the maximum contribution limits. This flexibility distinguishes HSAs from flexible spending accounts and health insurance policies, which require you to experience an IRS qualifying event, such as getting married or divorced, in order to make a change during the plan year.

HSAs provide you with an unlimited amount of time after you pay for medical expenses to reimburse yourself. If you’re paying medical expenses with cash rather than tapping the account, hold on to the receipts, because you can reimburse those expenses with funds from your HSA at any time—even years after you’ve incurred the expense. In the interim, your funds will grow, tax-free.

Hidden Features

“HSAs help prepare for future health and wealth needs,” says Patricia Graves, knowledge adviser for the Society for Human Resource Management (SHRM). This is particularly true for retirees. You can’t contribute to an HSA once you sign up for Medicare (at least according to current law; there is legislation pending in Congress that may change that). But after you sign up for Medicare, you can still use the funds tax-free for medical expenses. (After age 65, you can withdraw money for nonmedical expenses without having to pay a 20% penalty, but you will pay taxes on those withdrawals.) Ideally, you should use the money for health care costs, which can be significant in retirement. And the list of eligible expenses is long. Along with deductibles, co-pays and other medical costs that aren’t covered by insurance, you can use the money for vision care, dental costs and hearing aids. HSA dollars can also pay a portion of long-term-care insurance premiums at various limits, depending on the age of the account holder.

HSAs can also help cover the cost of travel essential for medical care. Should you have to travel out of your state for a specific medical procedure, for example, you could use funds from your HSA to cover the cost of a flight or train, or to pay for gas, parking fees and tolls if you drive.

The Coronavirus Aid, Relief and Economic Security (CARES) Act enacted in 2020 in response to the pandemic expanded the types of HSA-eligible expenses, and these changes are permanent. Over-the-counter drugs purchased on January 1, 2020, or later are now HSA-eligible without a prescription. Those include pain relievers, cough suppressants, antihistamines and other drugs that treat issues from heartburn to acne. The law also added feminine-hygiene products to the list of expenses that are eligible for HSA funds.

Selecting a Plan

Some companies encourage employees to sign up for high-deductible plans by offering matching HSA contributions. The average employer contribution was $867 in 2021, according to Devenir, an HSA consulting firm. Not all employers offer HSAs, but as long as you sign up for a high-deductible plan, you can open one on your own with a financial institution that provides HSAs. You may also choose to shop around if your employer’s plan comes with high fees or mediocre investment options. (You can compare plans at HSAsearch.com.) But you may sacrifice some perks if you choose that path, says Rich Ward, managing director and head of health solutions at TIAA, an HSA provider. Using an HSA outside your employer’s offering may mean forgoing the convenience of having pretax contributions deducted from your paycheck, he says. In addition, you may not be eligible for matching contributions if you opt for an HSA that’s not offered by your employer.

If you have an HSA through an employer-sponsored plan and lose your job, the account is yours to keep, and you can still use the funds anytime, tax-free, for qualified medical expenses. Although health insurance premiums are typically not considered qualified medical expenses, there’s an exception if you use withdrawals to pay premiums for COBRA coverage (which lets you continue employer-based insurance for up to 18 months after you leave your job) or to pay for other health insurance premiums if you’re collecting unemployment benefits.

New Limits

Because of recent increases in the cost of living, HSA contribution limits will rise significantly for 2023. The annual contribution limit for self-only coverage will increase from $3,650 to $3,850, and if you have family coverage, the limit will jump from $7,300 to $7,750. Catch-up contributions for account holders who are 55 or older will be $1,000, the same as in 2022.

Time is running out if you haven't filed your 2022 federal income tax return yet. This year's tax filing deadline is April 18 for most people. (The tax deadline is extended for some residents in states impacted by severe weather and storms). But filing your federal tax return isn't the only thing you should be thinking about for April 18, because there are a few more tax deadlines that fall on that day.

If you are self-employed, saving for retirement or college, have a health savings account, or employ a nanny, you may want to take action by the tax deadline. There are other reasons why you might have a tax-related deadline today.  And, overlooking a tax deadline could cost you money, either in additional taxes, penalties, or interest. So, here are 9 tax deadlines for Tax Day, April 18, that you don't want to miss. Check them out to see if any apply to you.

Of course, the biggest due date on the tax calendar each year is the one for your federal personal income tax return. Like most of the tax deadlines on this list, it usually falls on April 15 but is April 18 this year because of a local holiday in Washington, D.C. and because April 15 falls on a weekend. 

This year, you generally must file your return for the 2022 tax year (i.e., for the income you received from January 1 to December 31, 2022). Use Form 1040 and the related schedules to report your 2022 income, adjustments, and credits. The IRS recommends filing your return electronically, as opposed to using a paper form and mailing it in, because the return will be processed much faster. If you are getting a tax refund, you will also get your money much faster if you e-file your return. Opting for direct deposit over a paper check will speed up your refund as well.

If you can't file your income tax return on time, you can get an extension until October 16. However, to get the extension, you must request it by the end of the day on April 18. To make the request, either file Form 4868 or make an electronic tax payment.

Just remember that the extension to file your return doesn't extend the time to pay your tax. You still have to estimate the amount of tax you'll owe and pay your tax bill by midnight April 18. If you don't act in time, the IRS will charge you interest on the unpaid balance and hit you with late payment penalties.

For more information, including extension details for Americans living abroad and people serving in a combat zone, see How to Get More Time to File Your Tax Return.

Although we only have to file an income tax return once each year, the IRS expects you to pay your taxes throughout the year as you earn income. If you are working for a business, those tax payments are withheld from your paycheck and sent to the IRS by your employer. But if you are self-employed or have income from other sources that aren't subject to withholding, then it is up to you to make quarterly estimated tax payments during the year.

The first estimated tax payment for 2023 is due April 18 for most people. This payment is for the estimated amount of taxes owed for income received from January 1 to March 31, 2023. Use Form 1040-ES to calculate and pay your estimated taxes. If at least two-thirds of your gross income is from farming or fishing, you can make just one estimated tax payment for the 2023 tax year by January 17, 2024. If you don't pay enough tax during the year, either through estimated payments or withholding, the IRS could hit you with a stiff penalty.

If you want to put more money in an IRA and have it count towards your 2022 contributions, you have until the end of the day on April 18 to make that move (If you're in a state impacted by disaster or storms, the IRS may have extended that deadline). That's because most people have until your tax return filing deadline for the year to fund an IRA for that year. But remember that there are limits to the amount you can contribute to an IRA each year. For 2022, you can put away up to $6,000 in an IRA – $7,000 if you're age 50 or older.

If you haven't already maxed out your 2022 IRA contributions, doing so before the April 18 tax deadline can be a smart move. First, contributions to a traditional IRA are often tax deductible, while withdrawals from a Roth IRA are tax-free. So, whether you contribute to a traditional or a Roth IRA, you can cut your tax bill now or in the future.

People with low or moderate income who contribute to an IRA might also qualify for the Saver's Credit, which can be worth as much as $1,000 ($2,000 for joint filers).

If you contribute to an IRA for 2022 by the tax filing deadline, you can claim the IRA deduction and/or the Saver's Credit on your 2022 tax return. That means you can get the tax benefits immediately, instead of waiting until next year if you were to contribute the same amount after Tax Day.

Also note that the tax return filing deadline is also the last day to withdraw any excess 2022 contributions to your IRAs (if you didn't request a filing extension). So, if you put in more than the $6,000 limit ($7,000 if you're 50 or older), take it out now to avoid stiff penalties.

Self-employed people saving for retirement have until the end of the day on April 18 to put money away in a Solo 401(k) plan or Simplified Employee Pension (SEP) IRA for 2022. If they request a tax return filing extension, the deadline shifts to October 16.

For the 2022 tax year, a self-employed person can contribute up to $61,000 to a Solo 401(k) – $67,500 if they are age 50 or older. (Those amounts go up to $66,000 and $74,500, respectively, for 2023.) These amounts are relatively high because you can make contributions as both an employee and an employer, although the April 18 deadline only applies to the "employer contributions."

The SEP IRA contribution limit for 2022 is $61,000 ($66,000 for 2023). Only the employer can contribute to a SEP IRA, and whatever percentage of compensation employers set aside in the plan for themselves is the same percentage of pay they must contribute for each eligible employee.

Contributions to both Solo 401(k)s and SEP IRAs are deductible – at least to a point. Contributions made to a Solo 401(k) as an employer are deductible business expenses. However, the deduction can't be more than 25% of the compensation paid (or accrued) during the year to eligible employees participating in the plan. If you're self-employed, you must reduce this limit for contributions you make for your own account.

For a SEP IRA, the most you can deduct on a 2022 tax return for contributions to your or your employee's account is the lesser of:  (1) your contributions, or (2) 25% of the compensation (limited to $305,000 per participant) paid to the participants during the year from the business that has the plan, not to exceed $61,000 per participant. (In 2023, these amounts increase to $330,000 and $61,000, respectively.) If you contribute to your own SEP-IRA, you must make a special computation to figure your maximum deduction for the contributions.

If you have a health savings account (HSA) or Archer medical savings account (MSA) as part of your health insurance plan, Tax Day (April 18) is the last day you can contribute to the account for 2022 (People in states where the IRS extended the tax deadline due to storms, have more time).

For 2022, you can contribute up to $3,650 to an HSA if you have self-only coverage or up to $7,300 for family coverage. (For 2023 figures and other 2022 limits, see HSA Contribution Limits and Other Requirements.) For an Archer MSA, you or your employer can contribute up to 75% of the annual deductible of your high deductible health plan (65% if you have a self-only plan), although you can't contribute more than you earned for the year from the employer through whom you have your HDHP.

Plus, you may qualify for a deduction on your 2022 tax return for contributions to your HSA or Archer MSA (complete Form 8889 for the HSA deduction and Form 8853 for the Archer MSA deduction). If you can claim one of these deductions, think about putting more money into the account for 2022 before the tax deadline expires if you haven't already reached the contribution limit. That's especially true if you plan to make a contribution soon anyway. That way, you'll get that extra deduction for 2022 and save more cap space for 2023 contributions.

People saving for retirement or medical expenses have until the end of today to contribute to 2022 accounts – but what about people saving for college? If you're using a Coverdell Education Saving Account (ESA) to save away money for college, then you also have until the end of Tax Day, April 18, to put more money away in the account for 2022.

With a Coverdell ESA, you can't contribute more than $2,000 for any particular child. Plus, if your modified AGI is between $95,000 and $110,000 (between $190,000 and $220,000 for joint filers), the $2,000 limit for each child is gradually reduced to zero.

There's no deduction for contributions to a Coverdell ESA. However, money deposited in a Coverdell ESA grows tax free, and there's no tax on distributions used for qualified college expenses. So, the earlier you get money into the account, the more time it has to grow before the child is off to college.

If you employ a nanny, babysitter, maid, gardener or other household worker, but you aren't filing a federal income tax return (Form 1040), you must file Schedule H and pay 2022 employment taxes for your household workers by the end of Tax Day (April 18). If you do file a tax return, include Schedule H with the return and report the tax owed on Schedule 2 (Form 1040), Line 9.

Both you and the employee may owe social security and Medicare taxes. You're responsible for payment of the employee's share of the taxes as well as your own. You can either withhold your worker's share from the employee's wages or pay it out of your own pocket.

Your share is 7.65% of the employee's wages (6.2% for Social Security tax and 1.45% for Medicare tax). Your employee owes the same amount. The limit on wages subject to social security tax was $147,000 for 2022, but there's no limit on wages subject to the Medicare tax. Household employees also owe a 0.9% additional Medicare tax on wages exceeding $200,000 for the year. The additional tax is only imposed on the employee, but you have to withhold it from their wages and pay it to the IRS.

You also might have more to worry about than just federal taxes. Unless you live in a state with no income tax, you probably have to file a state income tax return on April 18, too. (You might have a local tax return due as well).

In most states, the deadline for file a state income tax return is the same as the federal due date. But there are a few states that have a different due date. Also, due to severe weather and natural disasters, some states have extended tax deadlines.

For state tax deadlines, including those for extension requests, estimated payments, and returns for other types of taxes, check with the state tax agency where you live.

Saving money is often mentioned as one of the core steps toward financial success. Also important is deciding where to save money, as there are numerous options to consider. 401(k)s, IRAs, Roth IRAs, nonqualified accounts and others all have their own rules, benefits and tax implications. Among all of these, though, there is one account that may be the most valuable and, at the same time, the most overlooked: the health savings account (HSA).

An HSA is a tax-advantaged way to save money to pay for qualified medical expenses. It is available for people who are covered by a high-deductible health insurance plan and, similar to 401(k)s and IRAs, HSAs do have contribution limits set each year. While many high-income earners may find themselves ineligible for a Roth contribution or IRA deduction, HSAs have no income limits on who can contribute.

Since it is only available to those with high-deductible health plans, you must first make sure that type of health insurance best fits your situation. Ideally, high-deductible plans are for those with low health care needs, and since your health may one day dictate that a high-deductible plan is not in your best interest, it is all the more important to take full advantage of an HSA while you can.

When people think of the HSA, seldom do they think of retirement savings. Often it is used instead as a source of funds for current health care costs to be withdrawn and spent each year. This can lead to a significant missed opportunity. Unlike a flexible spending account (FSA), where funds have to be spent by the end of the year, HSAs allow account balances to roll over into future years. Because of this, along with the tax benefits and flexibility that an HSA offers, it becomes an ideal long-term investment account. Being more specific, the HSA becomes a perfect account to view as a medical retirement plan.

The HSA Offers Second-to-None Tax Benefits

A major feature of the HSA that sets it apart from other accounts is its tax benefits. Many of us are familiar with the tax savings that come with 401(k) contributions. Contributions are tax-deductible, giving us tax savings in the years that 401(k) contributions are made. This tax incentive is offered, in part, to encourage people to put enough money away for retirement. Likewise, investments promote economic growth. Therefore, as a matter of policy, the federal government offers numerous tax incentives to encourage people to save money.

Various accounts, especially retirement accounts, offer some form of the following: a tax-deduction on contributions, tax-deferral on growth, and/or tax-free withdrawals. Annuities, for instance, offer tax-deferral on growth, while most retirement accounts offer a combination of two of the three forms.

Outdoing all of these, the HSA offers triple-tax benefits:

• Tax deductions on contributions.
• Tax-deferred growth.
• And tax-free withdrawals if used for qualified medical costs.

Adding all these together can result in sizable tax savings and more money in your pocket. These tax savings would be maximized by investing the contributions for growth and not withdrawing them right away for current medical costs. When they are withdrawn immediately, the account loses one of its three tax benefits, as it is being denied the opportunity for tax-deferred growth.

For a view at the potential savings, compare an IRA and HSA, which have — up until the time of withdrawals — enjoyed the same tax benefits. At the time of withdrawals, this changes as the IRA money is now taxed while the HSA is tax-free. If both accounts were $300,000 and the owner was in the 24% tax bracket, the after-tax equivalent at that moment for the IRA is $228,000 ($300,000 – 24% tax) while the HSA has an after-tax equivalent of $300,000. This leaves $72,000 in extra tax savings due to the HSA having triple-tax benefits versus the double-tax benefit of the IRA.

The HSA Is Flexible

Along with great tax benefits, HSAs, in many instances, offer the best flexibility also. One reason is that HSAs do not have any limitations on when a health care expense is incurred and when it is reimbursed. Instead of taking money out of the HSA at the time each medical expense happens, you can use cash to pay the medical expense and let the HSA continue growing. This allows you to maximize the tax benefits by keeping money in the more tax-advantaged HSA account.

You should then hold on to these medical receipts because the HSA can be tapped at times when cash on hand may be getting tight. Since medical expenses can be reimbursed at a later time, if you need cash for living expenses, you can withdraw it from your HSA by using it to reimburse yourself for any of those prior medical costs. For most retirement accounts, withdrawing money at a time of a cash crunch is usually done by either accepting a 10% early withdrawal penalty, withdrawing Roth IRA contributions, or by taking a loan on your 401(k). For the HSA, the funds are accessible before age 59.5 if used on qualifying medical expenses.

Adding to the flexibility, the list of medical expenses that the IRS views as “qualified” is long. It includes items such as doctor visits, dental exams, lab fees and physical therapy. Other common eligible medical costs include long-term care premiums (up to a certain amount each month depending on your age) and Medicare A, B, C and D premiums. Note that Medicare supplemental premiums, like Medigap, are not eligible, though.

The Medical Retirement Account

To get the most use from the benefits of an HSA, it is best viewed as a long-term investment vehicle to help with future medical costs in retirement. It can be a missed opportunity not to approach it as such. This includes maximizing and investing contributions for growth, paying current medical costs out of pocket and saving the receipts so that you have the option to withdraw funds if life’s curveballs lead to some temporary hard times.

Positioning the HSA as a medical retirement plan will provide you with an important tool for navigating health care costs in retirement, which we all will have to some degree. As already mentioned, one of these is Medicare premiums. In fact, Fidelity estimates that the average couple will need $300,000 in today’s dollars for medical expenses in retirement. The HSA can be there, supplying tax-free withdrawals for these costs.

And, while the HSA does have a 20% penalty if funds are withdrawn and not used for qualified medical expenses, after age 65 this penalty drops off. So if you find yourself over 65 and in a situation where you need to tap your HSA and do not have enough medical expenses, the HSA can again prove its worth as the withdrawals are taxed but not penalized. In other words, you still receive the tax-deferred contribution from the years prior and all the tax-deferred growth, while only losing the tax-free withdrawal – similar to the tax benefits of an IRA. The HSA, in this situation, is now acting like an IRA tax-wise, although, making it even better, one that does not have required minimum distributions.

Summing it up, with all the benefits that come with a HSA, it can be a great option for medical expenses in retirement. Considering that you must be on a high-deductible health insurance plan to be eligible for an HSA and that such a plan may not always best fit your health situation, it is important to take advantage of the HSA when you can. In return, you receive triple tax benefits, flexibility to access it for qualified medical expenses without penalty before retirement, and, as a worst-case scenario — after age 65 it becomes, for all intents and purposes, an IRA with no required minimum distributions.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you’re suspecting that I’ve got an obscure cryptocurrency or robo account to flaunt … fear not. Every millennial need look no further than an ordinary health savings account (HSA).

The HSA may very well be the most powerful tax shelter, pound-for-pound, in the United States. Unfortunately, not everyone is eligible to contribute to an HSA. Let’s cover the basics and review how you could supercharge your savings with an HSA strategy.

What is an HSA?

An HSA is a savings account that allows you to save pre-tax to pay for qualified medical expenses. Savings within the HSA can be invested, and your investment earnings grow tax deferred. Best of all, when paying for any qualified medical expenses, withdrawals can be made tax-free. The unique triple-tax advantage of the HSA is truly one-of-a-kind and just about the only way individuals can use income for personal use without the IRS touching a single dollar.*

This is no small thing. Most tax-advantaged savings plans give you a take break now OR a tax break later. An HSA gives you both!

Unfortunately, not everyone can contribute. The IRS only allows people with high-deductible health plans (HDHPs) to participate with an HSA. To be eligible in 2022, individuals must have a health plan deductible of at least $1,400, and the out-of-pocket maximum must be below $7,050. A family health plan must have a deductible of at least $2,800, and the out-of-pocket maximum must be below $14,100. These requirements are not particularly high, so many individuals will find themselves eligible.

How Do They Work?

If you meet the criteria to contribute you can start funding an HSA. If your employer does not offer an HSA, you’re allowed to open your own independently. There are many providers to choose from.

Next, consider the contribution limits. The tax benefits are so powerful that the IRS puts strict limits on what you’re allowed to contribute. In 2022, individuals can contribute up to $3,650 per year and families can contribute $7,300 per year. If you’re 55 or older, you can add an additional $1,000 “catch-up” contribution on top.

Remember, your current year contribution counts as a tax deduction. Once funded you can choose among various savings, mutual funds and ETF options to get your money to work.

How to ‘Supercharge’ an HSA

Health costs are inflating between 6% and 7%. The average millennial often feels bulletproof and rarely worries about future health costs. But time remains undefeated, and one day these costs will demand your attention.

Generally, to take advantage of the aforementioned tax benefits, you’ll need to use your HSA funds to pay for some medical expenses. As an example, when you visit your doctor you can use an HSA-linked debit card to cover the cost of your $20 co-pay.

Here’s a trick to keep up your sleeve. Consider paying for some of your medical expenses, particularly the smaller ones, from your bank account instead. You’re allowed to document that same expense with a receipt, paid invoice, etc., and deduct that expense from your HSA in a future year. Guess what? That old bill will never increase, but your invested HSA can! By deferring the expense, your HSA’s energy can focus on growth. When you do finally get around to reconciling those past bills, the withdrawals will amount to a smaller percentage of the now-inflated whole.

This little maneuver may eventually be closed by the IRS. Until then, orderly record keepers can get some extra mileage out of their HSAs!

The Bottom Line

All of the above, of course, assumes that you have the financial means and cashflow to utilize a strategy like this … and the reality is many millennials do not. Student debt is at record levels, home prices are soaring, the cost to start a family and raise children is exorbitant.

If you can’t max out an account like this or utilize this supercharged strategy, I’d still urge you to consider doing something. Start saving, keep doing research and continue doing what you can to best prepare for your own financial freedom and security.

* It’s also worth noting that if you take a distribution out that is not deemed to be for qualified medical you will owe ordinary income tax and potentially contend with an additional 20% tax. The additional 20% tax goes away after reaching age 65, upon death and upon disability, www.irs.gov/publications/p969).

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Whether you have a use-it-or-lose-it flexible spending account or a more forgiving health savings account, you can make the most of your health savings by taking certain steps at the end of the year.

Get the Most From Your Flexible Spending Accounts

If you are worried about losing funds you’ve set aside in a pretax flexible spending account for health or dependent care—perhaps because you put off medical appointments or your kids have been home during the pandemic—relax. Legislation enacted in response to COVID-19 tweaked rules for flexible spending accounts. Instead of losing those funds at the end of the year, employers can modify their plans to allow workers to carry over unused funds through 2022.

Normally, your employer may let you roll over up to $550 of unused funds in a health care FSA for an additional 2½ months (that is, until March 15 of the following year), and you can’t roll over any dependent care FSA funds. But for 2021, employers may provide a 12-month grace period (to December 31, 2022) for both types of flex accounts. That’s particularly significant for dependent care spending accounts, because Congress allowed those FSA holders to sock away up to $10,500 of pretax wages in 2021, up from the standard limit of $5,000.

If your employer doesn’t provide a grace period, keep in mind that depleting unused funds in a health care spending account is easier than using up a dependent care FSA. You can pay for home COVID-19 testing kits, hand sanitizer and masks. You can also use FSA funds to buy over-the-counter drugs, such as pain relievers, cough suppressants and antihistamines. For a full list of eligible items, go to www.fsastore.com/fsa-eligibility-list.aspx. If you’re unsure about whether your employer offers a grace period, contact your human resources department as soon as possible.

Budget For a Health Savings Account

If you have a Health Savings Account (HSA), no need to make a midnight run to Walgreens, because there’s no deadline to use funds in the account. But this is a good time to figure out how much you can afford to sock away next year. For 2022, the HSA annual contribution limit for self-only coverage increases from $3,600 to $3,650. If you have family coverage, the limit rises from $7,200 to $7,300. If you’re 55 or older by the end of 2022, you can put in an extra $1,000 in “catch up” contributions.

To qualify for an HSA, your 2022 health insurance policy must have a minimum deductible of $1,400 for self-only coverage or $2,800 for family coverage. Didn’t max out your 2021 HSA contributions? You have until April 15, 2022, to add to the account.

As is the case with a health care FSA, you can use HSA funds for personal protection equipment, such as masks, and COVID testing kits, as well as other out-of-pocket medical expenses. You can’t have both a health care FSA and an HSA.

According to the IRS, COVID-19 home testing kits are an eligible medical expense under the tax code. Personal protective equipment (PPE), such as masks, hand sanitizer and sanitizing wipes, are also eligible medical expenses if they're used primarily for preventing the spread of COVID-19. That means taxpayers who itemize can deduct the cost of home testing supplies and PPE to the extent their total eligible medical and dental expenses exceed 7.5% of their adjusted gross income (AGI).

For example, suppose you buy a home COVID-19 test kit for $75 and $50 worth of PPE this year. You also have another $4,875 of medical expenses for a total of $5,000 in eligible medical and dental expenses. If your AGI is $50,000, the first $3,750 of your medical and dental expenses are not deductible ($50,000 x 7.5% = $3,750). But you can deduct the remaining $1,250 ($5,000 – $3,750 = $1,250).

In addition, as eligible medical expenses, you can pay for COVID-19 home testing kits and PPE with money in a health flexible spending arrangement (health FSA), health savings account (HSA), health reimbursement arrangement (HRA), or Archer medical savings account (Archer MSA).

Also note that only unreimbursed expenses count as eligible medical and dental expenses. So, if you're reimbursed for expenses you originally paid, you must reduce the total amount of your expenses by that amount when claiming the medical expense deduction. Likewise, if your insurance company pays for part of your expenses and you pay the rest, you can only deduct the amount you paid.

Whose Medical Expenses Can You Deduct?

You can deduct COVID-19 home test kits and PPE you purchase for yourself and certain other members of your family. Under the tax law, you can deduct medical and dental expenses you paid for anyone who was one of the following either when the medical or dental services were provided or when you paid for them:

• Your spouse;
• A dependent you claim on your tax return;
• Your child whom you don't claim as a dependent because of the rules for children of divorced or separated parents;
• A person you could have claimed as a dependent on your return, except that he or she received $4,300 or more of gross income or filed a joint return; and
• A person you could have claimed as a dependent, except that you, or your spouse if filing jointly, can be claimed as a dependent on someone else's tax return.

Under these rules, you may even be able to deduct the cost of a COVID-19 home test kit or PPE for your parents. For example, if you provide over half of your mother's support but can't claim her as a dependent because she received wages of $4,300 or more during the year, you can still deduct any eligible medical expenses you paid for your mother if all other requirements are met (e.g., medical expenses exceed 7.5% of your AGI, etc.).

Even after employers pick up a substantial amount of the cost, Americans spend thousands of dollars on health care annually. Workers who use employer health insurance plans pay an average of $1,243 a year in premiums for single coverage or $5,588 for family coverage, according to the Kaiser Family Foundation. The average annual deductible is $1,644 for single coverage, and those with family coverage often have an overall deductible of at least $2,000. Annual out-of-pocket maximums may run several thousand dollars. To help relieve the pain of high health care costs, check out these 20 money savers.

If you visit a provider that doesn’t fall within your plan’s network, you’ll pay more for care. If you have a preferred provider organization (PPO) plan, you may receive some level of coverage for out-of-network care. But with a health maintenance organization (HMO) plan, you’ll likely pay the full cost. Use your insurer’s online tools to search for in-network providers.

Starting in 2022, by federal law insurers must cover at in-network rates “surprise” medical bills, which result when patients unknowingly get care from out-of-network providers in emergencies. You may also get a surprise bill if you visit an in-network facility and see a provider (say, a physician or anesthesiologist) who is not in-network. In the interim, you can appeal with your insurer any surprise bills that you receive. And many states have their own laws that provide some protection against surprise medical bills.

Most health insurance plans must cover certain preventive services without charging you, even if you haven’t met your deductible. They include immunizations; depression and blood-pressure screenings; cholesterol and diabetes screenings for those of specified ages or who have certain risk factors; mammograms for women older than 40; and vision screenings for children. (For a full list, see www.healthcare.gov/coverage/preventive-care-benefits.) High-deductible health plans may cover certain treatments for chronic conditions, such as insulin for diabetes and statins for heart disease, before policyholders reach their deductible.

Consulting with clinicians by phone or video chat has grown by leaps and bounds during the pandemic. If your insurance plan partners with a vendor, such as Teladoc, that specializes in telehealth services, using it may cost you less than seeing your regular doctor, says Anne Brunson, of benefits administrator Maestro Health. If you virtually visit one of your usual care providers, you’ll often pay the same amount out of pocket that you would for an in-office appointment, although some insurers may waive or lower your co-payments for telehealth appointments.

If you meet your insurance deductible, squeeze in any appointments that make sense to complete before the plan year closes. Otherwise, you may be on the hook for the full cost when the deductible resets next year.

Your employer may make con­tributions to your health savings account or flexible spending account on your behalf (some employers match your contribution or require you to participate in a wellness program to receive funds). Or you may have free access to smoking-cessation or weight-management programs. Participating in such programs may come with incentives, too, such as a reduction in your monthly premium.

If you have a qualifying high-deductible health plan, for 2021 you can put up to $3,600 in an HSA if you have self-only coverage or $7,200 if you have family coverage (plus $1,000 in catch-up contributions for those who are 55 and older). Pretax (or tax-deductible) money goes into the account, it grows tax-deferred, and you can withdraw the funds tax-free for eligible medical expenses.

If you have access to a health care FSA through an employer-sponsored health plan, you may be able to contribute as much as $2,750 in pretax funds for 2021, and you can withdraw the money tax-free for qualifying medical expenses. Typically, employers may allow employees to carry over a limited amount of unused funds to the following plan year, or they may offer a grace period of two and a half months to use the previous year’s funds. Because of special rules in response to the pandemic, however, employers currently may permit employees to roll over unlimited amounts from the 2020 plan year to 2021, and from 2021 to 2022. Or employers can lengthen the grace period for 2020 and 2021 plans to 12 months.

You can withdraw HSA and FSA money tax-free to pay for deductibles and co-payments or co­insurance, as well as a variety of other expenses, including eyeglasses, medical monitoring and testing devices, and orthodontia. And thanks to rules that went into effect in 2020, you can now use the funds for over-the-counter drugs (such as pain relievers, cough suppressants and antihistamines) without a prescription, as well as for feminine-hygiene products.

HSA funds have no expiration, making an HSA a great vehicle to tuck away money for medical expenses in retirement. Premiums for Medicare parts B and D and Medicare Advantage plans (but not supplemental policies) are HSA-eligible, as are long-term-care insurance premiums (up to specified limits) and expenses for certain home improvements to accommodate medical conditions—say, widening doorways or adding support bars.

If you itemize deductions on your tax return, you may deduct qualified medical and dental expenses (such as prescription drug costs and payments to medical providers) that are unreimbursed by insurance and exceed 7.5% of your adjusted gross income. See IRS Publication 502, Medical and Dental Expenses, for more information.

Have your doctor prescribe generic versions of your medications, if available, or ask your pharmacist to switch to a generic drug at the counter. Generics cost as much as 85% less than brand-name drugs. If a generic drug is unavailable, ask your physician whether there are similar medications to treat your condition that could do the job just as well, and check whether your insurer covers those drugs at a more favorable rate.

For maintenance medications that you take regularly, you may save money by ordering 90-day supplies rather than 30-day refills. Walmart, for example, charges $4 (without insurance) for 30-day supplies of certain generic medications and $10 for 90-day supplies. Receiving mail-order medications—which often come in 90-day supplies—may save you money, too.

At sites such as GoodRx.com, SingleCare.com and WeRx.org, enter the name of your medication and your zip code to see a comparison of prices at pharmacies near you and get coupons. In some cases, the cash price with a coupon may be lower than what you’d pay with insurance. Some pharmacies have their own discount programs. The Walgreens Prescription Savings Club ($20 yearly for an individual or $35 for families) provides discounts of up to 80% on cash drug prices. Check NeedyMeds.org for information on drug discounts and assistance programs, too.

You often can’t use coupons or discount programs in conjunction with your insurance—so a drug purchase with a coupon or discount program won’t count toward your deductible unless the insurer allows you to submit the purchase later. And if you occasionally bypass insurance or switch among pharmacies, the pharmacies may not be able to monitor for dangerous interactions between medications.

Com­paring prices for procedures at different facilities could save you big bucks. Typically, you’ll pay more for outpatient services—such as x-rays, MRIs and minor surgeries—performed at a hospital than at facilities not owned by a hospital, says Michael O’Neil, of Healthcare Bluebook, which collects information on health care pricing. When he needed orthopedic work on his knee, O’Neil estimates that he saved about $10,000 by asking his physician to order scans and perform a procedure at a clinic outside of the local hospital’s network. Visiting an urgent-care center often costs less than going to an emergency room.

At www.healthcarebluebook.com, you can use a free tool that offers estimates of fair prices in your area for a range of procedures. (Recently, the tool has been unavailable while being revamped, but it is expected to be up and running by July.) At www.fairhealthconsumer.org, you can see both in-network and uninsured pricing estimates for procedures in your region. And new federal rules require hospitals to post on their websites price information for their services.

During each annual open enrollment period, review your options. Especially if your health or family status has changed, you may find that a plan with a different deductible, premium, network or drug formulary is most cost-effective. If you use the HealthCare.gov exchange, you have a special opportunity this spring to enroll in or switch plans.

Medicare beneficiaries should re-evaluate their plans, too. “Insurance companies that offer Part D drug plans revise their benefits, premiums and co-pays each year, so it’s a good idea to review your annual notice of change each September,” says Danielle Roberts, of Boomer Benefits, which helps consumers navigate Medicare plans. Or you may find that it makes sense to switch to an all-in-one Medicare Advantage plan. Go to www.medicare.gov/plan-compare to shop for Part D and Advantage plans.

A knowledgeable agent or broker can steer you through plan options at no extra charge to you. If you’re buying a plan in the individual market, search for an agent or broker at https://localhelp.healthcare.gov. Medicare beneficiaries can find local counseling and assistance by choosing their state at www.shiptacenter.org.

If your income is below certain levels or you meet other requirements, you may be eligible for financial assistance to help cover your medical costs. Medicare.gov has in­formation on Medicare’s programs, including Extra Help, which defrays prescription-drug expenses for those with limited income and resources. Check with your state’s insurance department, too—some programs have higher income thresholds than you might expect, says Casey Schwarz, of the Medicare Rights Center. New York’s Elderly Pharmaceutical Insurance Coverage program, for example, offers assistance for married Medicare beneficiaries with income of up to $100,000 ($75,000 if you’re single).

Before you schedule a procedure, ask the provider for its lowest price for patients who pay cash without insurance, says O’Neil. It may be lower than the insured rate, and sidestepping insurance may be worthwhile if you have a big deductible that you don’t expect to meet before the year ends.

Check to see that your insurer is covering medical costs appropriately and that you received all of the services and medications listed on your bills. For complex procedures and hospital visits, request an itemized bill that details each fee. If you see a problem, ask for a correction. Brunson, of Maestro Health, once noticed that she was charged for intravenous fluids that she never received during an emergency-room visit.

You will pay an “income-related monthly adjustment amount” (IRMAA) on your Medicare Part B and Part D premiums if the modified adjusted gross income on your tax return from two years ago exceeded certain levels. For 2021, an extra charge applies for those with 2019 income greater than $88,000 on an individual return or $176,000 on a joint return. If your income has fallen because of a major life-changing event, you can request an adjustment to your IRMAA by submitting Form SSA-44 to the Social Security Administration.

Relatively few Americans itemize deductions on their tax return. You can either claim the standard deduction or itemized deductions on your return — but not both. And, of course, you always want to pick the higher amount, which is the standard deduction for the vast majority of people.

That means most Americans can't claim some very well-known tax breaks. No deduction for medical expenses. Zero tax savings for mortgage interest payments. Nothing for state and local taxes, either. If you claim the standard deduction, you can't claim any of these popular write-offs.

But there are several other popular tax deductions that people taking the standard deduction can still claim on their tax return. Most of these so-called "above-the-line" deductions have no income limits, so anybody can claim them on Schedule 1 of their Form 1040. Plus, because these deductions will lower your adjusted gross income (AGI), you may be able to claim other tax breaks that have AGI-based income limits. (They're called "above-the-line" deductions because you record them on the 1040 form above the line showing your AGI.) So, if you're claiming the standard deduction and want to lower your tax bill, keep reading to see if you qualify for any of these common money-saving write-offs.

Contributing to a traditional individual retirement account (IRA) is a win-win move that lets you boost your retirement savings and trim your tax bill at the same time (assuming you have earned income). For 2021, the contribution limit is $6,000 ($7,000 if you're 50 or older) or your taxable compensation for the year, whichever is less. Plus, if you (and your spouse, if you're married) don't have a retirement plan at work, every dollar of that can be knocked off your taxable income. If you're covered by a retirement plan at the office (or your spouse is) then that deduction might be limited if your income exceeds certain levels. Most people have until April 18, 2022, to make deductible IRA contributions for the 2021 tax year (residents of Maine and Massachusetts have until April 19, and certain natural disaster victims have until May 16).

For 2022, the contribution limits remain the same as they were for 2021. However, the income limits for the deduction are slightly higher. You can make deductible IRA contributions for the 2022 tax year until April 18, 2023.

Are you funding a health savings account (HSA) in conjunction with a high-deductible health plan? If so, that's a smart move.

You get an above-the-line deduction for contributions to the HSA, assuming you made them with after-tax money. If you contribute pre-tax funds through payroll deduction on the job, there's no double-dipping — so no write off. In either case, you need to file a Form 8889 with your return.

The maximum contribution for 2021 was $7,200 for family coverage and $3,600 if you're an individual (they're $7,300 and $3,650, respectively, for 2022). If you're 55 or over at any time in the year, you can contribute (and deduct) another $1,000.

People who have an Archer medical savings account (MSA) can also deduct contributions to the account. The deduction is limited by a portion of the related high deductible health plan's (HDHP's) annual deductible, and your compensation from the employer maintaining the HDHP.

Note that contributions can't be made to an Archer MSA for you after 2007 unless:

• You were an active Archer MSA participant before 2008; or
• You became an active Archer MSA participant after 2007 because of coverage under an employer's HDHP.

Use Form 8853 to calculate the Archer MSA deduction.

If you work for yourself, you have to pay both the employer and the employee share of Social Security and Medicare taxes — a whopping 15.3% of net self-employment income. But at least you get to write off half of what you pay as an adjustment to income. Use Schedule SE to calculate this deduction.

You can also deduct your contributions to a self-directed retirement plan such as a SEP, SIMPLE, or qualified plan. Special rules for computing the maximum deduction apply to self-employed people who contribute to their own SEP. If your SEP contributions exceed the maximum deduction amount, you can carry over and deduct the difference in later years.

Also deductible as an adjustment to income: Health insurance costs for the self-employed (and their families) — including Medicare premiums and supplemental Medicare (Medigap), up to your business' net income. You can't claim this deduction if you're eligible to be covered under a health plan subsidized either by your employer (if you have a job as well as your business) or your spouse's employer (if he or she has a job that offers family medical coverage).

(Note that self-employed people operating as a sole proprietor may also be able to claim the 20% deduction for qualified business income. It's not considered an "above-the-line" deduction, since it's reported on the 1040 form after AGI is calculated. However, it can put a significant dent in your tax bill if you can satisfy all the requirements. But it won't help you qualify for other tax breaks by lowering your AGI.)

Up to $2,500 in student loan interest (for you, your spouse or a dependent) can be deducted on your 2021 tax return if your modified AGI is less than $70,000 if you're single or $140,000 if you're married and filing a joint return. The deduction is phased out above those levels, disappearing completely if you earn more than $85,000 if single or $170,000 if filing a joint return.

You can't claim this deduction if you're married, and you and your spouse are filing separate tax returns. You're also disqualified if someone else (e.g., a parent) claims you as a dependent on their tax return.

The loan must have been used to pay qualified higher education expenses, such as tuition, fees, room and board, books and supplies, and other related expenses. The expenses must also be for education in a degree, certificate, or similar program at a college, university, or qualified vocational school.

You may be able to deduct alimony you pay to a former spouse as long as your divorce agreement was in place before the end of 2018 and the monetary payments are spelled out in the agreement. The deduction disappears if the agreement is changed after 2018 to exclude the alimony from your former spouse's income.

You must also report your ex-spouse's Social Security number, so the IRS can make sure he or she reports the same amount as taxable income. (Child support, however, is not deductible.)

The 2017 tax reform law did away with almost all employee deductions that were taken on Schedule A by itemizers. But in certain lines of work, under certain conditions, you can still write off some of your costs with an "above-the-line" tax deduction. Here are those adjustments to income, which are now found on Schedule 1 (Form 1040):

• You're a schoolteacher and you buy supplies for your classroom. Educators can write off up to $250 each year of classroom expenses if they teach kindergarten through 12th grade and put in at least 900 hours a year on the job. Expenses paid or incurred in 2021 for personal protective equipment, disinfectant, and other supplies used to prevent the spread of COVID-19 are included. You don't have to be a teacher to claim this break. Aides, counselors and principals may claim it if they have the receipts to back it up. But parents who home-school their children are out of luck.
• You're in the National Guard or military reserves and you travel to drills. You must travel more than 100 miles from home and be away from home overnight. If you qualify, you can deduct the cost of lodging and meals (following the federal per diem schedule) plus an allowance for driving your own car. For 2021 travel, the rate is 56 cents per mile, plus what you paid for parking, fees and tolls. (For 2022, it's 58.5 cents for each mile.)
• You're a performing artist making less than $16,000 (sorry Beyoncé, not for you). The IRS will expect you to show that at least two employers paid you $200 each for your services and that the expenses you intend to deduct are more than 10% of what you made from performing. Note that the IRS specifies that you need to be an employee receiving wage income.
• You're disabled, have a job, and incur expenses that allow you to work. Here's an example from the IRS: You're deaf and use a sign-language interpreter during meetings while you're at work — that's a deductible expense.
• You're a "fee-basis" public official and want to write off job expenses. This does not mean people employed by any government. Rather, it's for individuals who perform a public function and are paid directly by the people they serve (e.g., a justice of the peace). If you meet that definition, you can deduct your work-related expenses.

Unless you're an educator deducting classroom expenses, file Form 2106 with your tax return if you're claiming one of these deductions.

Did you break into a certificate of deposit (CD) early and get slapped by a bank penalty? Bank penalties can vary widely, but one thing is constant: You can deduct the penalty, no matter how lenient or how stiff, as an adjustment to income.

A Form 1099-INT or Form 1099-OID from the bank will show the amount of any penalty you paid.

(Note that the additional 10% tax on early distributions from qualified retirement plans doesn't qualify as a deductible penalty for withdrawal of savings.)

The 2017 tax reform new tax law killed the moving expense deduction, but with one significant exception: If you're an active member of the U.S. Armed Forces, the cost of any move associated with a permanent change of station is still deductible if the move was due to a military order. This includes a move from your home to your first post of active duty, a move from one permanent post of duty to another, and a move from your last post of duty to your home or to a nearer point in the United States.

You can write-off the unreimbursed costs of getting yourself and your household goods to the new location. If you drove your own car for a move in 2021, deduct 16 cents per mile plus what you paid for parking and tolls (18 cents per mile for 2022). (Use Form 3903 to tally your moving deductions.)

While technically not an "above-the-line" deduction because it's reported on Form 1040 after your AGI is set, people who take the standard deduction on their 2021 tax return can deduct up to $300 of cash donations made to charity last year (up to $600 for joint filers). Donations to donor advised funds and certain organizations that support charities aren't deductible. Contributions carried forward from prior years and most cash contributions to charitable remainder trusts are excluded, too.

Since this deduction is recorded on your tax return after your AGI is calculated, it won't lower your AGI. So, it won't help you qualify for other tax breaks. Nevertheless, it's a nice little tax break that millions of Americans can claim.

Unfortunately, though, the deduction expired at the end of 2021. So, while you can claim it on your 2021 tax return that's due this year, you won't be able to claim it on the tax return you'll file next year.

There are several other "above-the-line" deductions that aren't very common, but nonetheless are allowed and can save you money if you qualify. Here's a quick rundown of the "other" deductions that a relatively few number of people can take on Schedule 1 to lower their AGI:

• Attorney fees and court costs for lawsuits involving certain unlawful discrimination claims (limited to the extent of gross income from the lawsuit) or paid in connection with a whistleblower award from the IRS (limited to the award includible in gross income);
• Contributions to Section 501(c)(18)(D) pension plans;
• Contributions by certain chaplains to Section 403(b) retirement plans;
• Expenses reported to you as a beneficiary on the final return of the estate or trust if reported as Section 67(e) expenses on Schedule K-1 (Form 1041), box 11, code A;
• Foreign housing expenses (file Form 2555);
• Jury duty pay if you gave the pay to an employer because your salary was paid while you served on the jury;
• Olympic and Paralympic medals and U.S. Olympic Committee prize money (nontaxable amount of the value);
• Reforestation amortization and expenses;
• Rental-related expenses if you rent personal property for profit and you aren't in the business of renting the property (only expenses related to taxable income); and
• Supplemental unemployment benefit repayments.

If the COVID-19 pandemic has taught us anything, it’s that we have to be ready for the unpredictable. This is especially true when it comes to planning for unexpected medical costs. After all, no one plans to get sick or end up in the hospital. However, when you consider that roughly 4 in 10 Americans would struggle to cover a $400 emergency, many families could find themselves in a challenging financial situation if they got hit with an expensive and unplanned medical bill.

Health savings accounts, or HSAs, can help you take control of your health and financial wellness needs in today’s unpredictable world. Not sure how they work? Don’t worry — you’re in good company. New research from Voya Financial shows that only 2% of people are aware of the key attributes of an HSA.

To help you get up-to-speed, below are five facts to help break down what you need to know about HSAs. And with open enrollment season underway for many American workers, now is a good time to get educated on HSAs as you consider all your employer-sponsored workplace benefits.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

An HSA is a medical savings account that’s available to you when you’re enrolled in a qualified high-deductible health plan (HDHP). The IRS defines these plans as those that have a deductible of at least $1,400 for an individual and $2,800 for a family in 2020. With the rising costs of health care, an increasing number of companies started offering HDHPs in their employee benefits packages. Prior to the pandemic, industry research showed that nearly half of Americans (46%) with private health insurance were enrolled in a HDHP.

Typically, most HDHPs are combined with an HSA, which is funded by pretax dollars that are deposited into your account, usually through a payroll deduction. As a result, HSAs have increased in popularity to help pay for qualified medical costs, while also helping employees plan for and cover the high deductibles associated with these health plans.

Perhaps the biggest benefit of an HSA is the triple tax advantages it offers: 1) contributions are pretax and reduce your taxable income; 2) your HSA funds grow tax-free; and 3) when used to pay for eligible medical expenses, HSA withdrawals are tax-free.

HSA contribution amounts are capped each year by the IRS. For 2021, the HSA contribution limits are $3,600 for individuals and $7,200 for family coverage. Individuals who are 55 and older are eligible for an additional $1,000 catch-up contribution.

If affordable, it’s a good idea to consider maximizing your HSA contributions to get the full advantage of these triple tax benefits. Plus, when a person reaches retirement age at 65, those HSA funds can then be used to pay for general living expenses — housing, food or travel, for example — and will be taxed like any normal distribution from a retirement account. Unlike a 401(k) or an individual retirement account (IRA), HSA contributions made via payroll deduction aren’t subject to FICA (Social Security and Medicare) taxes, and a person is not required to take minimum distributions at any age.

Most people do not realize that when you enroll in an HSA through your company it’s not tied to your employment. Unlike your health insurance plan and your flexible spending account (FSA), which are generally tied to your employment, your HSA is portable — meaning you own the account. Therefore, if you get laid off, furloughed from your job or chose to leave, your account and funds stay with you and you can always use your HSA dollars to help pay for qualified medical costs.

In addition, unlike flexible spending accounts, HSAs are also not “use-it-or-lose-it” accounts, and your balance carries over each year. Also, when enrolled in an HDHP and HSA, you can choose to cover medical expenses out of pocket now and take a tax-free distribution in the future in the amount of your current expense. This approach allows you to use your HSA as a potential emergency savings vehicle. Just make sure to hold onto your receipts to verify all distributions. Plus, with an HSA, you have the ability to change your contribution amount at any time during the year. You’re not “locked in” to the amount you selected during your open enrollment period.

Back in March, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help Americans impacted by the pandemic. As part of this legislation, HSAs can now be used to purchase certain over-the-counter medical products and medicines — including those needed in quarantine and social distancing, and feminine hygiene products — without a prescription from a doctor.

The CARES Act also expanded coverage of telehealth services. Specifically, it now includes a provision that allows HDHPs to cover telehealth services before the deductible has been met. Until now, the IRS had not allowed these expenses to be reimbursed under a HDHP until the plan’s deductible had been reached.

In addition to helping American workers take control of their health and financial wellness needs, HSAs can also provide an attractive investment opportunity. Account holders can contribute money in their HSA to plan for future health care costs, while also investing in mutual funds once the account reaches the investment threshold. These investment options are similar to lineups available in typical workplace retirement accounts and can include target-date series, active and passive equity, and bonds and fixed income. Therefore, an individual can put money into their HSA for 20 or 30 years and potentially be better prepared for retirement.

This design feature of an HSA is important when you consider the U.S. is facing a retirement crisis, due in large part to the ever-increasing costs of health care. Industry research shows 40% of American workers lack confidence that they will have enough money to take care of their medical expenses in retirement. And, those feelings may be justified, when you consider the average couple is estimated to need $296,000 in savings for a 90% chance of covering health care expenses in retirement.

Therefore, in addition to helping pay for health costs when you are working, HSAs can serve as a valuable long-term savings vehicle to help close the retirement health care savings gap.

While no one knows for certain when this global health crisis will come to end, it’s important we continue to prepare for the unexpected. During your open enrollment period, I would encourage everyone to take a closer look at HSAs. While misunderstood and often underutilized, now is the time to get smart on HSAs as a potential opportunity to help protect your family’s health and financial wellness needs.

As the country dealt with the fallout from the coronavirus pandemic this spring, lawmakers and regulators scrambled to ease the pain of record job losses and other blows to Americans’ pocketbooks and health. One result that has largely flown under the radar: Health savings accounts and flexible spending accounts, which offer a tax-advantaged way to save money for certain medical or dependent-care expenses, have become more generous. Some of the changes are temporary, but others have no expiration.

More expenses are covered. Thanks to the Coronavirus Aid, Relief and Economic Security (CARES) Act, you can use money from an HSA or a health care FSA to pay more expenses—and these changes are permanent. Over-the-counter drugs purchased January 1, 2020, or later are now HSA- and FSA-eligible without a prescription. Those include pain relievers, cough suppressants, anti­histamines and other drugs that treat issues from heartburn to acne, says Shobin Uralil, cofounder and chief operating officer of Lively, an HSA provider. Feminine-hygiene products such as tampons, pads and menstrual cups are also qualifying expenses under the law.

Other new rules give a high-deductible health plan paired with an HSA the green light to cover certain expenses you incur as a result of the pandemic before you meet your deductible. One such

expense is telehealth, through which patients and clinicians consult remotely over the phone or by using a video chat tool, such as FaceTime. Telehealth services have been on the rise now that social distancing is encouraged — and high-deductible plans with plan years that start on or before December 31, 2021, are permitted to cover the services even if you haven’t reached your deductible. High-deductible plans may also pay for testing and treatment related to COVID-19 before you’ve reached your deductible. If a corona­virus vaccine becomes available, receiving one would be considered preventive care and may be excluded from your deductible, too.

A health savings account is a powerful tool to cover out-of-pocket medical expenses: Contributions are pretax (or tax-deductible, if your HSA is not employer-sponsored), the funds grow tax-deferred in the account, and withdrawals are tax-free for qualified medical expenses, without a time limit. An HSA is a smart way to save for medical expenses in retirement, too. The money in your account can grow over time through investments, and “it can be the best tax-sheltering account of them all,” says Dennis Nolte, a certified financial planner in Winter Park, Fla.

If you had an HSA through an employer-sponsored plan and you lost your job, the account is yours to keep, and you can still use the funds anytime, tax-free, for qualified medical expenses. Although health insurance premiums are typically not considered qualified medical expenses, there’s an exception if you use withdrawals to pay premiums for COBRA coverage (which lets you continue employer-based insurance for up to 18 months after you leave your job) or to pay for other health insurance premiums if you’re collecting unemployment benefits.

FSAs are even more flexible. FSAs allow employees to set aside pretax money for certain health care or dependent-care expenses, but they come with more limitations than HSAs. While you’re employed, you have only until the end of your plan year to use the funds, or until March 15 if your employer offers a grace period. Alternatively, you may be permitted to roll up to $500 of your unused balance in a health care FSA to the following plan year. If you lose your job, you may have up to 90 days from termination (depending on your former employer’s rules) to submit receipts for expenses you incurred while you were still employed. But you can’t make claims for expenses incurred after you lost your job—unless you get COBRA continuation coverage for your FSA.

To help those who are dealing with pay cuts, fluctuating expenses or other unexpected effects of the pandemic, the IRS is allowing certain midyear changes to employee health insurance benefits and FSAs that are typically permitted only during open enrollment or when a worker has a qualifying life event, such as the birth of a child or a marriage. Employers are not required to offer these midyear plan adjustments, and a little more than half say they aren’t planning to do so, according to a survey by benefits consultant Mercer. But 43% said they will let workers alter contributions to a dependent-care FSA, and 29% will permit contribution changes to a health care FSA.

Depending on what your employer offers, you may be able to start setting aside funds in an FSA or stop contributing to one that you currently have. Or you may have the option of raising or lowering the amount that you put into your current plan. What’s more, for 2020 plans, employers may increase the amount of unused funds that can be carried over to the following year to $550 (that does not apply to 2019 funds carried into 2020). Companies may also extend the grace period from March 15 until the end of the year. So an employer may, for example, let employees use funds from their 2019 FSAs through the end of 2020.

Money stashed in a dependent-care FSA may be used to pay for child or adult day care; a babysitter or nanny; preschool; before- and after-school programs; and summer day camp. The ability to modify contributions to these accounts midyear could be especially beneficial for parents who set aside funds in a dependent-care FSA but have had lower child-care expenses than expected during the pandemic—for example, because child-care centers were closed or a summer camp was canceled. The changes could also be a big help for those who are saving in a health care FSA—for example, because a planned medical procedure was delayed as a result of the pandemic.

You probably never heard of COVID-19 when you picked this year's health insurance policy at work. You couldn't have planned for the coronavirus pandemic when you signed up for a 2020 flexible spending arrangement (FSA), either. But you might not be stuck with the choices you made in 2019 with respect to employer-provided health insurance and FSAs for 2020. That's because the IRS is letting workers make mid-year changes to their health insurance coverage and FSAs. It's also expanding FSA rules concerning carryover and grace periods.

But there's a catch: You can only take advantage of the new rules if your employer modifies its benefit plans. If your company doesn't want to make the necessary changes, then you're out of luck. But assuming your bosses are on board, here's a rundown of the mid-year health insurance changes allowed, the enhanced rules for FSAs, and even some adjustments that help people with health savings accounts (HSAs). Hopefully, the added flexibility will help if you're dealing with unexpected medical and dependent care expenses because of the coronavirus outbreak.

Normally, you can't change your employer-provided health insurance coverage during the year unless there's a qualifying "life event," such as a marriage, divorce, birth or adoption of a child, death of a covered family member, child turning 26, move to a new home, or change of employment status within the family. However, for many workers, the health insurance they signed up for last year isn't sufficient to handle unanticipated medical expenses linked to the coronavirus.

To help alleviate the problem, the IRS is allowing employers to modify their health benefit plans so that workers can make certain mid-year changes to their 2020 health insurance choices. Changes are only allowed on a prospective basis. Specifically, an employer, in its discretion, can amend its health plan to allow each employee to:

• Sign-up for health insurance now if he or she initially declined coverage;
• Sign-up for a different health plan (including changing enrollment from self-only coverage to family coverage); or
• Revoke existing coverage if the employee attests in writing that he or she is enrolled, or immediately will enroll, in another health plan not sponsored by the employer.

An employer is not required to allow all (or any) of these changes. It can pick and choose which of these new elections to offer. An employer can also limit health insurance changes to those that would increase or improve a worker's coverage (e.g., by electing to switch from self-only coverage to family coverage, or from a low-option plan covering in-network expenses only to a high-option plan covering expenses in or out of network).

Workers can also make mid-year changes to their health and dependent FSAs – again, if their employer modifies its FSA plan. Thanks to the IRS's blessing, employers can allow workers to:

• Sign-up or revoke an election to contribute to a health or dependent care FSA for 2020; or
• Increase or decrease the amount contributed in 2020 to a health or dependent care FSA.

As with mid-year changes to health insurance plans, employers can allow one, both or no changes. They can also limit mid-year elections based on FSA amounts that are already reimbursed.

Changes to FSAs are only permitted on a prospective basis, though. So, for example, you can't get back a contribution you already made.

FSAs generally operate under a "use-it-or-lose-it" rule: Use money contributed during the year to pay for qualifying expenses incurred that year or forfeit the unused funds. However, for health care FSAs, an employer can bend that rule a bit and allow workers to carryover up to $500 of unused contributions to the next year.

Employers now have the option of upping the carryover amount for 2020 FSAs to $550. This doesn't apply to amounts carried over from 2019 to 2020, though.

In addition, the carryover amount will be adjusted for inflation going forward.

Another way an employer can tweak the "use-it-or-lose-it" rule is by providing a grace period of up to 2½ months to incur health or dependent care expenses for the previous year. For example, if an employee had unused FSA funds at the end of 2019, the employer could allow the worker to use the money to pay for qualifying health or dependent care expenses incurred from January 1 to March 15, 2020. For health FSAs, an employer can adopt a carryover or a grace period (or neither), but it can't adopt both features.

For 2020, the IRS is letting employers extend the grace period to the end of the year. Again, it's optional, though. So, for example, if an employer sponsored a 2019 FSA with a grace period ending on March 15, 2020, it could amend its FSA plan to let workers to apply unused 2019 FSA funds to pay for qualifying expenses incurred through December 31, 2020. However, health FSA amounts can only be used for medical care expenses, and dependent care FSA amounts can only be used for dependent care expenses.

The extension of time for incurring claims is available to both FSAs that have a grace period and FSAs that offer a carryover.

Note, however, that a worker who had unused amounts from a 2019 health FSA and who is allowed an extension to the end of 2020 to incur expenses generally will not be allowed to contribute to a health savings account (HSA) during the extended period.

On March 11, the IRS announced that anyone with a high-deductible health plan (HDHP) covering coronavirus testing and treatment before plan deductibles have been met can still contribute to a health savings account (HSA) and deduct those contributions on their 2020 tax return. (For details, see Free Coronavirus Testing and Treatment Won't Affect HSA Deduction.) The IRS has now clarified that this applies to coverage of testing and treatment expenses for all of 2020 (not just since March 11).

The IRS also expanded the list of coronavirus testing and treatment that an HDHP can cover without a deductible or with a deductible below the minimum annual deductible otherwise required. First, it added the panel of diagnostic testing for influenza A & B, norovirus and other coronaviruses, and respiratory syncytial virus (RSV), and any items or services required to be covered with zero cost sharing. It also included telehealth and other remote care services. Therefore, for example, an otherwise eligible person covered by an HDHP who was reimbursed for these tests and services before satisfying the HDHP's required deductible will still be allowed to contribute to an HSA in 2020.