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What to Know about HSAs, Taxes & Retirement

3 min read

30 sec brief

HSAs are often seen as health savings tool and they should be. However, HSA can provide deep financial flexibility and benefits, that are not only comparable to IRAs & 401ks, but that might even exceed those traditional retirement savings vehicles. Here is what you should know about HSAs, taxes & retirement.

HSAs are often seen as health savings tool and they should be. However, HSA can provide deep financial flexibility and benefits, that are not only comparable to IRAs & 401ks, but that might even exceed those traditional retirement savings vehicles. Here is what you should know about HSAs, taxes & retirement.

Tax Savings

We love to talk about triple tax advantages! HSA benefits include tax-deductible contributions, tax-free interest/investment gains, and tax-free withdrawals (for qualified medical expenses) which means you can use tax-free money from your HSA to pay for health expenses.

With retirement health care costs now expected to exceed $275,000 in out-of-pocket medical expenses, HSAs provide the only way to save and pay for these expenses tax-free. You might be the picture of health today, but contributing to your HSA will increase your health tax benefits and long term savings.

Catch-Up Contributions

In 2017, HSA-eligible plans have a maximum annual contribution limit of $3,400 for single coverage and $6,750 for family coverage. But that doesn’t mean you need to stop, you might be eligible to contribute more tax-free dollars. Remember – a little can go a long way.

After the age of 55, individuals can contribute an additional $1,000/year, as long as they qualify and are not signed up for Medicare. Under those same conditions, if you and your spouse are over the age of 55, you can each contribute $1,000 more/year. You can see full details and qualifications here. These age qualifying contributions allow you (and your spouse) to further grow your HSA savings.

The Magic HSA Birthday: 65 Years of Age

After the age of 65, the value of an HSA greatly expands because it becomes eligible for non-health expenses. From a technical standpoint it becomes another savings account – just pay income taxes at that time with no penalty, just like an IRA or 401k if used for non-qualified medical expenses. This creates a unique way to save for health and personal wealth for retirement.

No Mandatory Distributions

Unlike a 401k or IRA, you can let your HSA grow well into your 70s, 80s, 90s, etc. because there are no mandatory distributions. This is a huge benefit of an HSA. No required distributions mean you can choose when and if to sell your long-term HSA investments creating more flexibility and financial options when compared to a 401k or IRA. You can decide, when and if to sell your HSA investments in retirement, as it works best for you without distribution restrictions that come with a 401k or IRA.

It’s surprising to think of an HSA one of the most advantageous and flexible retirement savings tool, but it’s hard to ignore the flexibility it provides, even when compared to traditional retirement vehicles like a 401k and IRA.  Frankly put, you will have more money to pay for health costs in retirement if you contribute to your HSA today!

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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Lively

We are HSA Experts! Lively is a Health Savings Account (HSA) platform for employers and individuals. A 401(k) for healthcare.

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