Health care represents a prominent category of spending for those in retirement.
Even with Medicare, you likely will need to pay various medical costs out of pocket. While you can tap your retirement savings to help meet those needs, there is another source of funds — your Health Savings Account.
If you are already taking advantage of an HSA or are considering doing so, you may be surprised to learn that it could play an important role in your retirement.
A targeted, tax-advantaged savings tool
HSAs are savings plans associated with high-deductible health insurance policies. Your employer might offer the option of choosing such a policy, or it may be available to you if you purchase individual coverage. HSAs are funded with pre-tax dollars.
This can be through payroll deductions (made before your income tax withholding is calculated on each paycheck) or through tax-deductible contributions. Money in the account can be invested and grows on a tax-deferred basis.
If funds are used to pay for qualifying medical expenses, they can be withdrawn with no federal taxes due and, in most cases, no state taxes as well (check with your tax adviser to find out what rules apply in your case).
In 2020, you can make a contribution of up to $3,550 in an HSA ($4,550 for an individual age 55 or older). A couple can contribute up to $7,100 per year (or $9,100 if both are age 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 on a tax-free basis to meet expenses such as:
• Medicare premiums
• Health insurance deductibles
• Dental, vision and hearing care
• A portion of premiums for tax-qualified long-term care insurance
• Other out-of-pocket medical expenses
Good planning makes a difference
You can participate in an HSA prior to age 65, the age at which you qualify to enroll in Medicare. While saving in the plan you may want to try to retain as many assets as you can in the HSA in order to take full advantage of it as a retirement savings vehicle.
Talk with your financial adviser to learn more about how an HSA can be incorporated into your comprehensive plan for retirement.
Gregory A. Chona is a Certified Financial Planner with Ameriprise Financial Services in Crown Point. He specializes in fee-based financial planning and asset management strategies and has been in practice for 29 years. To contact him visit www.ameripriseadvisors.com/g.chona/, call 219-663-9860 ext. 114 or visit 11480 Broadway Crown Point. Ameriprise Financial Services Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax adviser or attorney regarding their specific situation.