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A Retirees’ Guide to Maximizing Healthcare Savings with an HSA
One of the biggest worries for people who are either retired or close to retirement is the increasing cost of healthcare and how to make their savings last throughout their retirement years. This can be a daunting prospect for retirees.
Today's blog post will focus on the use of Health Savings Accounts (HSAs) to cover healthcare expenses during retirement. It will provide a comprehensive guide on HSAs, including their definition, how they work, how to maximize their tax benefits, and how to supplement your other retirement savings.
What Is a Health Savings Account (HSA)?
A Health Savings Account or HSA is a tax-advantaged savings account designed to help individuals save money for healthcare expenses. It is available to those who have a high-deductible health insurance plan.
HSAs offer many tax advantages, making them attractive vehicles for healthcare savings.
Who is Eligible to use a Health Savings Account (HSA)?
Retirees need to be aware of the eligibility requirements and contribution limits necessary to qualify for a Health Savings Account (HSA). To be eligible for an HSA, you must have a high-deductible health insurance plan, which is a healthcare plan with a minimum deductible to be met each year. In 2024, the minimum deductible for a HDHP, set by the IRS, is $1,600 for self-coverage and $3,200 for family coverage. While HDHPs have higher minimum deductibles, typically, these plans have lower premiums than other health insurance plans.
You may not qualify for an HSA if you're covered by another health plan such as Medicare or a spouse's non-high deductible plan.
Important Note: Each eligible spouse must open their own separate HSA. You may not have a joint HSA with your spouse.
The IRS establishes yearly limits for HSA contributions. In 2024, the contribution limit for individuals is $4,150, and $8,300 for family coverage. Those 55 and older can contribute an additional $1,000 as a catch-up contribution. These catch-up contributions can provide an additional boost to your savings and help you maximize the potential benefits of an HSA in retirement.
How to Benefit from a HSAs Tax Advantages?
Contributing to a Health Savings Account (HSA) offers several tax benefits. The contributions made to an HSA are tax-deductible, which means they reduce your taxable income for the year. This can result in significant tax savings, particularly for retirees who may have lower incomes but still want to save for healthcare expenses. Additionally, the growth and interest earned in an HSA is tax-free. To maximize tax savings with an HSA in retirement, it is important to prioritize HSA contributions and take advantage of the tax benefits. By doing this, retirees can effectively reduce their tax liability and potentially increase their retirement savings. It is also crucial to keep track of qualified medical expenses and ensure that withdrawals from the HSA are used for those purposes to maintain the tax-free status of the account.
How to Use a HSA to Supplement Your Retirement Savings?
Retirees can supplement their retirement, using savings in an HSA. By contributing to an HSA, retirees can use the funds to cover qualified medical expenses such as doctor visits, prescription drugs, and long-term care. For a sample list of eligible healthcare expenses, reference this article from Smart Asset.
Important Note: You can still receive tax-free qualified distributions to pay your medical expenses, even if you are no longer an eligible individual.
At the age of 65, you can withdraw funds from the HSA for any reason without incurring a penalty, not just for medical expenses. However, these withdrawals will be taxed as ordinary income, similar to traditional retirement accounts. By taking advantage of the tax benefits and the ability to save for a variety of expenses, retirees can use an HSA to supplement their retirement savings.
Lastly, according to the IRS, if your spouse is the designated beneficiary of your HSA, then the account will be treated as your spouse’s HSA after you pass.
Why Use a HSA for Retirement?
By utilizing an HSA, retirees can not only save on taxes but also build a dedicated fund to cover their medical expenses in retirement. It provides them with peace of mind and the ability to effectively manage their healthcare costs, thereby helping to ensure a more financially secure retirement.
Need help managing your investments? Work directly with an experienced, licensed financial advisor at Sensible. Schedule a call today so we can show you how we’ve helped hundreds of people like you invest for a retirement they love.
This blog article is for informational and educational purposes only.
