Health Savings Accounts Now & In Retirement… Are You Taking Advantage?

Rising health care costs have never been greater. In 2017, estimated health care expenses for retirees had risen to over $245,000 per couple and that doesn’t include long term care expenses*. A properly deployed health savings account (HSA) is an alternative to a regular savings account that is worth considering, because an HSA can cover your healthcare expenses with tax-free money.

You are eligible to open a HSA if you are enrolled in a high-deductible health care plan. Many health care plans are high-deductible, otherwise you could be paying a hefty premium. If you are unsure if your plan is high-deductible, I would suggest asking your Human Resource Department, calling your insurance company directly, or you may give my office a call and we will help you take the necessary steps to figure it out.

What sets a HSA apart from a regular savings account is that an HSA is a tax-advantaged medical savings account. You can use HSA funds to pay for deductibles, copays, and other qualified expenses without having to pay federal income taxes**. Additionally, if your insurance plan does not cover dental or vision services, you can use your HSA to pay for those expenses as well.

Not only are the distributions tax exempt when used for medical expenses, but the money you contribute is considered pre-tax for income tax purposes at the time of contribution. Perhaps the best part is that whatever money you have not used at the end of the year can be rolled over year after year, which means you never lose what you contribute. Furthermore, HSAs can be transferred from one HSA to another without any tax penalties. So, were you to leave a job and the employer-sponsored HSA, not to worry. You may move your HSA to your next employer-sponsored HSA account or my firm can help you find your own.

When you turn 65, all HSA distributions are penalty free, even if the funds are not used for qualified health expenses. However, if not used for medical expenses, it will be taxable. Contributions have increased for 2018. The limit will now be $3,450 per person and $6,850 for families, with additional contribution options for catch-up contributions, minimum deductibles, and maximum out-of-pocket amounts.

As health care costs continue to rise, properly deployed HSAs can benefit your portfolio by covering your healthcare costs with tax-free money and protecting your next egg from depletion. Especially if you have maxed out your 401(k) and IRA contributions for the year, a HSA is another tax-deferred way for you to save your money. Plus, in the long term you could save even more money with the balance of your HSA carrying over year after year. If you have any questions or want further information on the subject, feel free to give my firm a call at (817) 717- 3812.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor.  Tax laws and provisions are subject to change.

* As seen in “Health Care Costs for Couples in Retirement Rise to an Estimated $245,000” fidelity.com

** Withdrawals from a healthcare savings account (HSA) for non-qualified expenses ae subject to income taxes, and if made prior to age 65, a 20% penalty may apply.

Charles Elhoff is a registered representative with, Virtus Wealth Management. Securities are offered through LPL Financial, Member FINRA/SIPC.  Investment advice offered through Level Four Advisory Services, a registered investment advisor.  Level Four Advisory Services and Virtus Wealth Management are separate entities from LPL Financial.