Throughout the month of June, Peak Wealth Planning actively promoted financial wellness. Working alongside the National Center for Employee Ownership (NCEO), our team developed 4 webinars on topics ranging from workplace financial wellness programs to age-specific financial strategies. During the Q&A segment, an attendee asked me:
"What is the purpose of Health Savings Accounts (HSA)?"
Health Saving Accounts are probably one of the most underutilized savings accounts out there, and it is available to many people. I would like to share with you why you should consider getting a Health Saving Account as you continue to improve your financial wellness.
HSA is a powerful tax free savings tool that can be used in later years for health and insurance related expenses.
Use it correctly and an HSA will provide the following 3 benefits.
Triple tax savings: Contributions are pre-tax and grow tax-free. Distributions for qualified medical expenses are not taxed.
Portability: Unused funds rollover each year and the balance stays with you if you switch jobs or retire.
Long term savings: Funds can be invested for tax-free growth. The balance can be used for Medicare, retiree medical insurance premiums, and qualified out-of-pocket expenses.
An HSA can reduce the need for other sources of retirement income to cover your increased medical expenses during retirement years.
How do you qualify for a Health Savings Account?
An HSA must be paired with a High-Deductible Health Plan (HDPH). The IRS defines high deductible health plans as those with a deductible of at least $1,650 for an individual or $3,300 for a family. To confirm you have a high-deductible health insurance plan, contact your employer, insurance company, or visit healthcare.gov.
How much can you contribute?
Annual contribution limits are $4,150, You and your spouse may have separate accounts or contribute to a joint account where the limit is $8,300 for a family (as of 2024). This includes employee and employer contributions. If you are over age 55, you can add an additional $1,000.
What happens when I do not make HSA Withdrawal?
If you don’t spend your HSA contributions on medical or dental care, once you reach age 65, you can use funds in your HSA to pay Medicare premiums or to buy long-term-care insurance. Or, if you saved older unreimbursed medical receipts, you can make withdrawals based on accumulated expenses (assuming the tax laws don’t change).
What About My 401k or IRA?
HSAs are a good option for folks who have contributed to their 401k and received the full employer match. A recommended strategy is to max out your tax-deferred 401k contributions, then max out your tax-deferred HSA, and then fund your IRA as a Roth if that option is available.
What qualifies as HSA Expenses?
Acupuncture
Dental treatment
Doctor's visits
Prescriptions
Eyeglasses, contact lenses and exams
Fertility enhancements
Hearing aids and batteries
Operations/surgery (non-cosmetic)
Nursing home or nursing services
Physical therapy
What qualifies as HSA health-care premiums?
Long-Term Care
Health care continuation coverage (COBRA)
Medicare (but not MediGap)
Is the HSA transferable upon death?
Your HSA will transfer to your spouse. For any other beneficiary, they will receive the fair market value of the account but the tax shield ends the date you pass away.
How does a HSA fit within the overall retirement plan?
An HSA can reduce the need for other sources of retirement income being used to cover your increased medical expenses during retirement years.
Several Peak Wealth Clients have made HSA contributions for many years. The interest rate is comparable to any savings account at a bank. Now retired, our clients can readily pay for deductibles and copayments on their doctor’s visits and prescriptions.
How do I open a HSA account?
Below are the 3 steps on finding an HSA financial institution by Healthcare.gov.
Research HSA providers online. Use HSA comparison websites, like HSA Search, to help narrow your choices.
Check with your health insurance company to see if they partner with HSA financial institutions.
Ask your bank if they offer an HSA option that meets your needs.
Were you unaware of the many benefits of a HSA?
I would love to know this information has been helpful to you as well as any additional questions you may have. Please send me a message.
One last thing.
Are you comfortable with your progress towards retirement? How about helping future generations meet their financial goals? If you have more than $2 million saved and need help from a wealth manager, the Peak Wealth Planning team can assist.
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About the Author
Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.
Peak Wealth Planning offers personalized concierge services to meet your wealth management needs, including financial planning, investment management, ESOP diversification, retirement income, insurance, and estate planning. As a fee-based financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states.