Advantage of Health Savings Accounts Include Retirement Planning

Health Savings Accounts (HSAs) are one of the best vehicles out there for saving for retirement. Unlike a traditional 401(k), they have the added benefit at retirement of tax free distributions. Since retirees can plan on continued and increasing costs for health care it’s a smart move to save as much as possible in an HSA for retirement.

While much has been written about the benefits of qualified retirement plans in retirement planning, HSAs offer an additional tool for paying for the growing health care expenses all of us likely will be faced with.

Contributions to an HSA, whether made by an employer or an employee, can only be made if the employee and their dependents are covered by a HSA qualifying high deductible health plan with no other low deductible coverage. For 2017, for self only coverage, the contribution limit is $3400, $6750 for family coverage. The minimum deductible limits for self only coverage is $1300 and for family coverage $2600. Employees that are 55 or older can contribute an additional $1000 annually.

HSAs offer a “triple tax savings”: once when made as a payroll contribution or from an employer, twice when the contributions are invested and grow tax free and the third time when distributions are made, as long as distributions are made for qualifying health expenses. Savvy investors save their health care expense receipts throughout their working years to count toward qualifying expenses allowing tax free distributions at retirement.

Smart investors will want to be sure to take advantage of investment options in an HSA and not limit growth to low earning money market accounts.

Other benefits of HSAs compared to qualified retirement accounts include that HSAs are not subject to required minimum distribution rules and they can be used for long term care premiums. After age 65 assets can be used for non-qualified expenses.

HTI Healthcare Trends Institute