Do you have a health savings account (HSA), or have you considered enrolling in an HSA? If you check the box for either of these, then you should learn how to leverage your account for maximum HSA savings. An HSA is a must-have for anyone with a high-deductible health plan, because it provides tax-free funds to offset out-of-pocket medical costs, and, unlike a Flexible Spending Account (FSA), your HSA funds roll over year to year and stay with you throughout your career and into retirement. If you are new to the HSA game, check out the video below, then read on for pro tips to help you make the most of your tax-advantaged funds!
Contributing A Little Goes A Long Way
You can make small monthly contributions to your HSA that will accrue over years, so that when you retire, you have savings set aside specifically for medical costs. Most people underestimate how much they should be saving for health care in retirement, as the focus is generally on retirement contributions for 401(k)s or IRAs, and benefits such as Social Security and pensions. However, research estimates that a U.S. couple may need as much as $400,000 for health care expenses during retirement years. While this figure might be intimidating, it simply shows that more Americans should be considering ways to save for medical expenses in retirement. This is where the HSA is key, because you can contribute over the course of your career to amass savings for health care in retirement.
HSAs Give You the Most Bang for Your Buck
We can’t say it enough: HSAs are currently the only triple tax-advantaged savings accounts on the scene! With 401(k)s, IRAs, and pensions, you pay income taxes on money you withdraw before a certain age. But with an HSA, you won’t pay any taxes for withdrawals when you use the money for a qualifying medical expenses.
With HSA triple-tax savings:
- Your contributions are made before taxes are taken out, which can reduce your overall taxable income
- Investment and interest earnings are tax free
- You don’t pay taxes when you withdraw HSA money to pay for eligible medical expenses
These triple-tax savings are perhaps the greatest feature of the HSA—along with the fact that the account stays with you throughout your lifetime.
For even more good news: Once you retire and are ready to withdrawal your HSA funds, you can use them on anything you like (subject to normal income taxes); it doesn’t have to just be medical expenses. That means vacations or a down payment on a new home are all on the table…the world is your oyster!
Take Advantage of Helpful HSA Savings Tools
If managing your HSA savings seems a bit overwhelming, don’t worry—you aren’t alone! We’ve created resources like our easy-to-use online investing tool and our HSA Save-It! feature to help you make smart HSA savings decisions. With a little forethought and planning, you can feel secure knowing that you have money set aside for health care costs now and in the future.