top of page
  • Writer's pictureNate Baim, MBA, CFP®

Health Savings Accounts Just Got More Powerful


Stay Stable with Sudden Wealth


Healthcare is one of the biggest expenses in retirement. Medicare doesn’t cover everything, and healthcare costs tend to increase over time. Health Savings Accounts (HSAs) were created to help people put aside money for the expense of healthcare in retirement – and thanks to inflation, they can now be even more beneficial.


HSAs have always been an excellent way to accumulate a growing pool of funds that can be used for healthcare expenses later in life. Because the annual contribution amounts are tied to the inflation rate, the increase in the annual contribution limit for 2023 was significant, increasing approximately 5.5% over the 2022 contribution limits.


These accounts allow individuals and families to accumulate savings in a “triple-tax-advantaged” way:

  • Contributions are in pre-tax dollars, so they lower taxable income in the year they are made

  • Accounts grow tax-free

  • There are no taxes on withdrawals as long as they are spent on qualified expenses

What Is a Health Savings Account?

HSAs are a type of savings or investment account that allows money to be put away before taxes and then used for qualified medical expenses. These include deductibles, copayments, coinsurance, long-term care, and other healthcare costs. HSAs were created to be paired with high deductible health plans (HDHP), and this type of health care plan is required to be eligible to contribute to an HSA. An HDHP usually has a lower monthly premium in exchange for a higher annual deductible.


What Are the Benefits?

Saving in an HSA has benefits now and in retirement. Contributions can often be made through your workplace with before-tax payroll deductions. You can take a tax deduction if you choose to fund an HSA with after-tax dollars.


While you can use your HSA for current medical costs, if you don’t draw on your HSA before retirement, you create the potential to maximize the power of compounding. The account grows tax-free, and when you withdraw funds in retirement for qualified medical expenses, the funds aren’t taxed as income, like those in other tax-advantaged accounts.


While you may change jobs and health insurance providers, the HSA is your account and is unaffected.


The funds in an HSA never expire and can even become part of your estate plan.


What Are the Contribution Limits?

The contribution limits are linked to inflation, so the increase for 2023 was significant. Individuals who have self-only insurance coverage and a high-deductible health care plan can contribute up to $3,850. Family coverage is eligible for a contribution of up to $7750. There’s also a $1,000 catch-up contribution for those aged 55 and above.


How Do They Work?

The list of qualified medical expenses is extensive and includes things like acupuncture, doctor visits, psychological therapy/psychiatric care, hearing aids, and prescription drugs, among other things. You’ll need to keep receipts, but the accounts are often online and may even provide you with a debit card.

If you select an investment account, you’ll have investment options to choose from. These options may have fees associated with them, and the accounts themselves may have fees, but there’s a lot to choose from, and finding lower-cost options is possible.


Are There Any Limitations?

Just like other tax-advantaged accounts, if you don’t follow the rules, you may be hit with a tax penalty. If you withdraw funds from your HSA before age 65, either for non-medical costs or unqualified medical costs, you’ll have to pay the federal income tax on the amount and pay a 20% tax penalty.


If you are 65 or over and take out funds for non-medical or unqualified medical costs, you still have to pay the federal income tax on the amount, but you won’t get hit with the 20% tax penalty.


The Bottom Line

Health Savings Accounts are a way to save and invest money for one of the biggest expenses in retirement. The amounts you can contribute are significant, and it may make sense to consider opening an account or increasing your contribution to an existing account.

Working with a trusted financial planner can reduce your stress and help you map out the best course of action for your situation. At Pursuit Planning and Investments, LLC, I help you think through your options. I help you make the best decisions for yourself, your family, and your money. Feel free to place a commitment-free 30-minute meeting on my calendar. We can discuss your goals and begin best optimizing your financial plan in that meeting.





Have something on your mind?

 

This work is powered by I/O Group under the Terms of Service and may be a derivative of the original. More information can be found here.


Pursuit Planning and Investments, LLC (“PPI”) is a registered investment advisor offering advisory services in the State of Oregon and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. We may, from time to time, have a position in the securities mentioned and may execute transactions that may not be consistent with this communication's conclusions. Past results do not guarantee future results. Please contact us at 971-803-5948 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions. Additionally, we recommend you compare any account reports from PPI with the account statements from your Custodian. Please notify us if you do not receive statements from your Custodian on at least a quarterly basis. Our current disclosure brochure, Form ADV Part 2, is available for your review upon request, and on our website, www.planyourpursuit.com. This disclosure brochure, or a summary of material changes made, is also provided to our clients on an annual basis.


This communication is for informational purposes only and is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This communication should not be relied upon as the sole factor in an investment making decision.


Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal the performance noted in this publication.


The information herein is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Pursuit Planning and Investments, LLC (referred to as “PPI”) disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.


All opinions and estimates constitute PPI’s judgement as of the date of this communication and are subject to change without notice. PPI does not warrant that the information will be free from error. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall PPI be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the information provided herein, even if PPI or a PPI authorized representative has been advised of the possibility of such damages. Information contained herein should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.


Comments


bottom of page