Most employees think of HSAs as a way to pay for current qualified medical expenses such as doctor and hospital expenses as well as prescriptions. However, employees should be educated regarding the value of their HSA after age 65 and using their HSA into their retirement years. HSAs are a valuable tool to enhance retirement savings.
Triple tax savings
An HSA can only be established with enrollment in a High Deductible Health Plan (HDHP). Generally speaking, the HDHP offers premium savings; however, HSAs also provide triple tax savings:
- Money goes into the HSA tax-free.
- Money continues to grow tax-free.
- Money can be spent tax-free for qualified medical expenses.
Maximum annual contributions
The IRS sets the maximum annual contributions to an HSA in a calendar year (subject to cost-of-living adjustments). The limit is determined by the type of coverage elected (single or family) and the participant’s age.
Long-term savings and investment
An HSA should be considered a source for long-term savings and investment. If unused, the funds that both participant and employer contribute remain in the account year after year. The HSA is a personal savings account, which grows over time. Many HSAs offer the opportunity to invest in mutual funds and other securities, which can accelerate account balance growth. In fact, using an HSA to save for retirement medical expenses can be as valuable as using retirement accounts as a saving strategy.
Medical expenses are one thing we can all count on in retirement. At age 65, HSA money can be used for anything (maybe that dream vacation), but taxes will apply to the withdrawal; however, using an HSA for medical expenses after age 65 is tax-free. Having an HSA is the best option for covering health costs in retirement.
When selecting a health insurance plan, it may be time to consider a HDHP and open an HSA to start saving for medical expenses both now and for retirement. By maximizing contributions, taking advantage of investment options and leaving as much of the balance untouched until retirement as possible, an HSA can create another significant retirement savings option.
Please reach out to your McGriff Benefit Consultant for more information on HSAs as a valuable retirement savings option for your employees.
Don’t have a McGriff Benefit Consultant? One of our specialists can help with your employee benefits needs.
Paula Smith, SHRM-CP, PHR, FCS, CFC
McGriff Flexible Benefit Services
New Business Specialist
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