Well being financial savings accounts supply many benefits

Matthew A. Treskovich

With taxes rising, health savings accounts provide an additional way for retirees to build wealth and save for retirement.

Health savings accounts, also known as HSAs, were set up by Congress in 2004 to encourage people to save money on future medical expenses. The rules for HSAs give these accounts unique advantages as a tool for long-term retirement planning.

HSAs offer tax benefits

Health savings accounts offer great tax benefits that you will not find with any other account.

Your employer’s contributions are not included in your taxable income. The same applies to contributions that you make with your wage deduction. If you’re contributing directly to an HSA, you can deduct the contribution on your tax return as an income adjustment, even if you don’t include any deductions. Your HSA credit can be invested on the exchange. You don’t pay any tax on interest, dividends, or capital gains in your HSA. Withdrawals, including winnings, are tax-free when you spend the money on qualified medical expenses.

More:Your Money: Understand How Your Advisor Is Paid

More:Your Money: What the American Jobs Plan Means for Investors

More:Your money: The strong economic recovery continues. Do you know what that means for you

To contribute to an HSA, you must have qualifying health insurance known as a “High Deductible Health Plan”. Contribution limits for 2021 are $ 3,600 for individuals and $ 7,200 for families. You are entitled to an additional catch-up fee of $ 1,000.

Unlike most other types of retirement plans, there are no income limits for who can contribute to an HSA. The contribution limits for HSAs are separate from other pension plan limits. You can still maximize your HSA contribution after exhausting other retirement plans. High income earners who are not eligible to contribute to a deductible IRA or a Roth IRA may still make deductible HSA contributions.

HSAs and retirement

If you enroll in Medicare, you will no longer be eligible to contribute to an HSA. The money in your health savings account is still yours and can be spent tax-free if you follow the HSA rules.

Most people will experience more health problems and spend more on health care in retirement than during their working hours. This makes HSAs a smart way for retirement savers to save on health expenses in retirement. Funds from an HSA can be used to pay Medicare premiums. Qualified long-term care insurance premiums and many long-term care expenses are also eligible.

There is no time limit on when you need to withdraw money from your HSA to cover medical expenses you paid out of pocket. By keeping your receipts, you can let your health savings account grow tax-deferred for years or even decades before making tax-free distributions.

Savers who start early and invest wisely can see their HSA balance grow to hundreds of thousands of dollars. As with any retirement plan, the earlier you start, the better. The admission rules can be complicated. It is important to seek advice from a tax and financial planning professional if you are to maximize the benefits of your HSA.

Matthew A. Treskovich is the Chief Investment Officer at CPS Investment Advisors of Lakeland.

Comments are closed.