Remember the old saying, “It’s not what you earn, it’s what you keep.”
As high-deductible health insurance becomes more common, health savings accounts (HSAs) may offer a hidden retirement savings option.
If you’ve never been eligible for an HSA and suddenly find you’ve changed jobs – or your employee benefits have changed – you may find you have a new health savings option. HSAs are available to people who have a health insurance plan with a high deductible (read on).
You probably already understand how individual retirement accounts (IRAs) and workplace tax-deferred savings accounts such as a 401(k) let you sock away money for retirement. This can be another tool.
You can think of an HSA as sort of like an IRA for health care. Money goes in pre-tax. It grows tax free. And if it’s used for qualified medical expenses, it comes out tax free. That’s a triple tax advantage.
A recent Kaiser Family Foundation study found high-deductible plans are becoming more common, so even if you weren’t eligible before, you may be soon. In 2016, 29% of workers were in such plans, up from 20% in 2014.
It’s worth mentioning you can withdraw money from an HSA account at any age to pay qualified medical costs without having to pay taxes on that withdrawal.
Or you could go ahead and pay those medical deductibles and copays out of pocket during your working life instead of tapping your HSA. After all, you can make up that income. Instead, you can leave your HSA untouched and let it grow, tax deferred, throughout your career. Then in retirement, after age 65, you can take it out for anything and only pay ordinary income tax, just as you would with an IRA or workplace retirement plan.
Of course, the generosity of the government has limits. There are rules to stashing money in an HSA.
You must qualify. The most important requirements are:
And remember, the HSA is yours to keep. It’s not to be confused with the workplace flexible spending account (FSA) that sets aside “use it or lose it” money for health and dependent care you must use in the year you set it aside. The HSA is your money. Even if you change health plans and don’t qualify for contributions, you can leave your HSA money where it is. In fact, if your company offers a qualifying high-deductible plan but no HSA, you can set up an HSA yourself.
Want to know more? Consult a financial professional, and check out the IRS’ surprisingly easy-to-read publication on HSAs.
Share your experiences with an HSA. Any tricks that have helped you figure it all out?
Neither Transamerica nor its agents or representatives may provide tax, investment, or legal advice. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal advisors and financial professional regarding his or her particular situation and the concepts presented herein.
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