A health savings account (HSA) can be a great way to save for healthcare expenses in retirement. Employee Benefits Research Institute (EBRI) estimates that a couple in retirement will need $301,000 to have a 90% chance of having enough to cover healthcare costs.
As these costs continue to rise year-over-year, an HSA can help you cover these costs in retirement. HSAs are the only savings and investment vehicle to have a triple tax advantage.1 Contributions are made on a pre-tax basis, grow tax-free and can be withdrawn without tax implications when used for qualified medical expenses.
How can you maximize your HSA to cover healthcare expenses in retirement? The following are some ideas that can help:
Just like any savings account, the earlier you save the more you’ll have in the future. The power of compounding is realized the longer your time frame. If you haven't started making contributions to your HSA, now may be a great time to start. Even if you are close to retirement age, your HSA can still provide benefits. For example, acountholders 55 and older can contribute an additional $1,000 above the normal annual HSA contribution limits ($3,500 for individuals and $7,000 for families in 2019).
If you are preparing for retirement, you likely have a 401(k) or another retirement plan from your company. If you pair your HSA with another retirement vehicle, it can be a great way to save for medical expenses during retirement. Maximizing annual contributions for both your 401(k) and HSA could also be an important part of making sure you have enough saved for retirement. At the very least, contributing enough to receive any matches your employer contributes to these accounts could be an important goal to reach.
Save HSA funds if possible
Saving money can be difficult. Most people contribute funds to their HSA to use tax-free money when they go to the doctor, dentist or pharmacy. There’s nothing wrong with that as it’s one of the ways to save money on taxes with an HSA.
However, if you and your family are healthy and you can save HSA funds, you may be able to grow the funds over time — possibly even all the way to retirement. Any unused funds in an HSA at the end of the year automatically roll over to the next year, and there’s no expiration date on when funds must be spent.
An HSA is a powerful tool in saving for retirement. If you strive to start as soon as possible, consider maximizing contributions to your HSA and other retirement accounts and do your best to save the funds in your HSA, you could be giving yourself an excellent chance to be prepared when retirement comes.
To learn more about how to take advantage of the many other benefits that HSAs provide, visit www.healthequity.com/HSAlearn.
1 HSAs are never taxed at a federal income tax level when used appropriately for qualified medical expenses. Also, most states recognize HSA funds as tax-free with very few exceptions. Please consult a tax advisor regarding your state’s specific rules.
HealthEquity does not provide legal, tax, financial or medical advice. Always consult a professional when making life-changing decisions.