Health Savings Accounts (HSA) Are The Perfect Retirement Investing Tool!
Health Savings Accounts (HSA) have become the hot retirement investing tool with many benefits, not to mention an HSA is what can be used to fund medical expenses too!
Health Savings Accounts (HSA) became available in the year 2003, through legislation signed by President George W. Bush (yes, the one who won’t stop talking). Since then, HSAs have experienced significant growth – and for good reason. This article will show you how to use a Health Savings Account (HSA) for retirement investing.
What is a health savings account?
Health savings accounts, or HSAs, are tax-advantaged savings accounts that are becoming increasingly popular as a retirement-savings tool. However, many people still have questions about HSAs and how they work. Here’s what you need to know.
Description: Health savings accounts are tax-advantaged savings accounts that help you save for health care expenses in the future. They are similar to traditional health care FSAs and flexible spending accounts, but they offer more favorable tax treatment Tax advantage: With an HSA, contributions are made with pre-tax dollars, and distributions for qualified medical expenses are not taxed.
The IRS also allows individuals to contribute to an HSA even if theHOW TO PLAN FOR RETIREMENT FROM YOUR 20S TO YOUR 60S – So Simple Even Your Kids Can Do It#1 Retirement Savings Calculatory participate in another healthcare plan through their employer. In addition, unlike an FSA or a flexible spending account, money in an HSA rolls over from year to year so that it can continue to grow tax-free.
IRA alternative: Health care is a major expense in retirement, so investing in your health today can help reduce expenses later in life. With an HSA, you can set aside money for your medical expenses now and invest those funds for the future. The interest in these investments is yours to keep when you retire.
If you’re like most Americans, you probably wouldn’t be able to tell me what a Health Savings Account is or how it might benefit you and your family.
Here’s the skinny: A Health Savings Account is a tax-advantaged medical savings account. If you’re under 65, it allows you to contribute money that can be withdrawn tax-free to pay for qualified medical expenses. If you are over 65, the money in an HSA grows tax-free and can be used tax-free for any purpose.
The IRS sets an annual limit on contributions to an HSA – currently, $3,350 for individuals, $6,750 for families – and some health insurance plans may limit the amount of HSA contributions they will accept. But as with all things financial, there are always ways around that if you’re smart enough.
At what age can you withdraw from HSA without penalty?
You can withdraw your HSA money penalty-free for almost any reason at any time after you turn 65. It’s a great way to supplement your retirement savings if you have high-deductible health insurance. The most common use for HSA cash is paying medical bills, but the account is not limited to that purpose.
You can also put money into an HSA and use it for long-term care expenses. The money in the account rolls over from year to year and doesn’t lose its tax-exempt status as long as it’s used for qualified medical expenses or long-term care.* Once you hit age 65, you don’t have to use your HSA as a supplemental source of funds for medical expenses.
You can invest it in mutual funds, stocks, bonds, or other investments.* If you aren’t using your HSA as a primary source of retirement income, you might want to look at other options. Your employer may offer a 401(k) plan with matching contributions. This is a better option than cashing out your HSA because you’ll be taxed on the withdrawal and will lose the opportunity to roll over the money into a new HSA next year.*
If you’re age 55 and under, you can actually make a relatively painless switch to HSA-compatible high-deductible health plan with your current employer—and then invest the money in a Roth IRA or even a taxable brokerage account. You’ll be using HSA money, not income or investment capital. And you can invest this money up to the limitations of the HSA (you may want to check if you qualify for catch-up contributions). The idea here is that once under the HSA umbrella, all of your investments are tax-free for life. That beats the Roth IRA when it comes to tax-free growth. Plus, if Congress raises contribution limits again, those gains can be passed on to heirs at death, penalty-free.