Health Savings Accounts Offer a Triple-Threat Tax Advantage
Posted July 9, 2021
As you begin to think about retirement and what the future holds, you’re likely considering all the ways that you can prepare, plan and save financially. Whether you’re thinking about your insurance plans, refinancing your home, or simply how to retire comfortably, a Health Savings Account (HSA) is one tool you can use on the road to retirement to help avoid health care costs later in life.
An HSA is a type of savings account that allows you to put money away for healthcare-related expenses tax-free—think of it as your special piggy bank, envelope, secret stash, or specialized savings account that only holds money designated to medical expenses.
You can put money into your HSA by depositing cash, through employer contributions, or a once-in-a-lifetime IRA conversion. For 2021, you can contribute up to $3,600 for self-only coverage and up to $7,200 for family coverage. For 2022, you can contribute up to $3,650 for self-only coverage and up to $7,300 for family coverage.
If you have a High-Deductible Health Plan, you may qualify for an HSA to help pay for Medicare Part B and D premiums, Medicare Advantage Premium, and long-term care insurance premiums.
Three primary factors make Health Savings Accounts a great retirement vehicle.
- Upfront Tax Deductions
When you make a deposit into your HSA, you are making an HSA tax deduction. These upfront savings will make a difference in your annual income.
- Tax-Free Growth
The tax-advantaged deposits made in your HSA will accumulate year-to-year if not spent (you can invest these funds in the market, which is when you can get considerable growth tax-free growth). This means that the HSA money can grow during your working years and be more profitable once you’ve retired and need to withdraw from the account.
- Tax-Free Distributions
The earnings in your HSA are tax-free, and so are the distributions when used to pay for qualified medical expenses.
Health Savings Accounts can be advantageous when used correctly. HSA contributions should not be spent on health-related expenses during the working years if you can help it. Once you have retired, the tax-free deposits into your HSA will have grown and can then be used to pay for most of your healthcare needs throughout your retirement years.
This tax-advantaged system allows you to grow your investment and save it for a time when you need it most. Retirement can bring unexpected costs, life changes, and unknown adventures— having a savings plan that can save you when you need it most is a financial investment worth making. Thayer Financial is ready to help you navigate the ins and outs of Health Savings Accounts from the perspective of comprehensive financial planning. As financial advisors in Hickory, North Carolina, Thayer Financial is your dedicated resource for fee-only, fiduciary advice. Schedule an appointment or call us today.
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