If you are retired, one of the biggest expenses you may face on a regular basis is health care. Even if you’re enrolled in Medicare, you may still have to pay many out-of-pocket medical costs, and costs generally go up, not down. Fortunately, there are tools that can help make these expenses more manageable, one of which may be a health savings account, or HSA. If an HSA is available to you, you may want to explore its potential benefits. Here is a primer.
A targeted savings tool with tax advantages
HSAs are savings plans associated with high-deductible health insurance policies. Many employers offer the option of choosing such a policy, but if you’re retired, it may also be available to you if you purchase individual coverage. HSAs are funded with pre-tax dollars. For those still working, this can be done through payroll deductions (taken before income tax withholding is calculated on each paycheck). Otherwise, it can be done through tax-deductible contributions. The money in the account can be invested and grown tax-deferred. If the funds are used to pay for qualified medical expenses, they can be withdrawn with no federal taxes due and, in most cases, no state taxes as well (check with your tax advisor to find out what rules apply to you).
In 2022, you can contribute up to $3,650 to an HSA ($4,650 for someone age 55 and older). A couple can contribute up to $7,300 per year (or $9,300 if both are over 55).
A flexible account for retirees
Any dollars remaining in your HSA can continue to accumulate in your account and be available to help offset medical expenses in retirement. At that time, you can withdraw dollars from your HSA tax-free to cover expenses such as:
• Medicare premiums
• Health insurance deductibles
• Dental, vision and hearing care
• A portion of tax-qualified long-term care insurance premiums
• Other out-of-pocket medical expenses.
• Good planning makes the difference
You can participate in an HSA before age 65, the age at which you qualify to enroll in Medicare. While you’re saving in the plan, you may want to try to retain as many assets as you can in the HSA to make the most of it as a retirement savings vehicle.
Talk to your financial advisor to learn more about how an HSA can be incorporated into your comprehensive retirement plan.
Bronwyn L. Martin is a Financial Advisor and Chartered Financial Consultant with Martin’s Financial Consulting Group, a Wealth Financial Advisory Practice of Ameriprise Financial Services LLC. in Kennett Square and Havre de Grace, Md. She specializes in fee-based financial planning and asset management strategies and has been in practice for over 22 years. To contact her: www.ameripriseadvisors.com/bronwyn.x.martin.