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HSAs and Retirement

4 min read

30 sec brief

Retirement healthcare costs are expected to exceed $275,000 per couple. This is on top of existing Medicare coverage. An HSA is the only health saving vehicle that allows individuals and families to prepare for these long-term health costs.

Retirement healthcare costs are expected to exceed $275,000 per couple. This is on top of existing Medicare coverage. An HSA is the only health saving vehicle that allows individuals and families to prepare for these long-term health costs.

The Tax Advantages of an HSA

HSAs allow for tax-deductible contributions, tax-free interest/investments and tax-free withdrawals (for qualified medical expenses). You can use tax-free money from your HSA to pay for health expenses for today and tomorrow.  This is an incredible way to minimize real health costs increases year over year. Unlike an FSA, there is “no use it or lose it” provision. An HSA is owned by the individual. HSAs provide a unique financial structure for long-term health benefits that moves with your from job to job, plan to plan and throughout your life.

HSA vs. IRA and 401k

Unlike a 401k or IRA, an HSA has tax free withdraws (for medical expenses). Retirement healthcare costs are expected to exceed $250,000 for individuals and $350,000 for couples. The HSA tax-free withdraws provide better financial stability by limiting real dollar costs for individuals in retirement than an IRA or 401k, at least for medical expenses. In addition, after the age of 65, an HSA can be used for non-health expenses – just pay income taxes at that time with no penalty, just like an IRA or 401k. In addition and unlike a 401k, you can let your HSA grow well into your 70s, 80s, 90s, etc. because there are no mandatory distributions.

HSA Savings Pitfalls

Traditional HSA providers charge hidden fees that limit the financiual growth of your HSA. Fees like monthly maintenance, debit card or ATM transactions, check processing, copy of statements, legal, account closure, and debit card replacement are common in the industry. These funds are pulling directly from your HSA savings. Be conscious of this when choosing an HSA provider. At Lively, we believe in 100% cost transparency. Lively is free for individuals and we never charge you those hidden fees we mentioned above. It’s your money, save it for your health!

How to Make the Most of Your HSA for Retirement

Invest – According to a recent study, most HSAs are used as a “checking account” for healthcare expenses, much more than an investment tool. HSA investments provide a great tool to dramatically increase the long term value of your HSA. Be conscious of short term cost vs. long term value trade-off when considering HSA investment options. If you have an opportunity to put money into your HSA, max it out every year and consider doing it before putting any money into your 401k or IRA. Best case, you have an extra tax advantage. Worst case, you have an extra account that operates exactly like the 401k.

Max It Out – HSAs are available to any individual, who has a high deductible health plan, even if they are not offered by an employer. Under 2017 federal regulations, HDHPs that qualify must have deductibles of $1,300 or more for an individual and $2,600 for a family. So if you qualify, you can sign up on your own (if not provided as part of your employer health benefits option). See how much you can contribute here.

Consider the Long Term – If you are currently using a PPO, you could consider switching to an HDHP and pairing it with an HSA to leverage long term health savings benefits. When comparing healthcare and health savings options don’t limit your considerations factor to this year only, take a long term approach as well.

An HSA is often thought of primarily as a health saving vehicle, but it should be considered a retirement saving vehicle as well. As you can see, it actually has more tax advantages than a 401k or IRA. While the contributions are currently lower than a 401k, consider using an HSA to your advantage to save for your health and retirement.

If you need more help with HSA decisions, check out our blog. We will make you a healthcare benefits expert in no time, without any extra work or effort on your end.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.

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