If you are retired, one of the biggest expenses you may face on a regular basis is health care. Even if you’re enrolled in Medicare, you may have to pay for various medical costs out of pocket — and, in general, the costs are going up, not down. Fortunately, there are tools that can help make these expenses more manageable, one of which may be a Health Savings Account, or HSA. If an HSA is available to you, you may want to explore its potential benefits. Here is a primer.
A targeted and tax-efficient savings tool
Health savings accounts are savings plans associated with high-deductible health insurance policies. Many employers offer the option of choosing such a policy, but if you are retired, it may also be available to you if you purchase individual coverage. These accounts are funded with pre-tax dollars. For those who are still working, this can be done through payroll deductions (made before the income tax withholding is calculated on each paycheque). Alternatively, this can be done through tax-deductible contributions. Money in the account can be invested and grow tax-deferred. If the funds are used to pay eligible medical expenses, they can be withdrawn without any federal taxes owing and, in most cases, without any state taxes (check with your tax advisor for rules that apply). in your case). In 2022, you can contribute up to $3,650 to a CGS ($4,650 for someone age 55 or older). A couple can contribute up to $7,300 per year (or $9,300 if both are 55 or older).
A flexible account for retirees
Any dollars left in your HSA can continue to accumulate in your account and be available to help offset medical expenses in retirement. At that time, you can withdraw dollars from your HSA tax-free to cover expenses such as:
- Health insurance premiums.
- Health insurance deductibles.
- Dental, vision and hearing care.
- Part of the premiums for a tax-qualified long-term care insurance.
- Other reimbursable medical expenses.
Good planning makes the difference
You can participate in an HSA before age 65, the age at which you are eligible for Medicare. While saving in the plan, you may want to try to keep as many assets as possible in the HSA to take full advantage of it as a retirement savings vehicle. Speak with your financial advisor to learn more about how a CGS can be incorporated into your comprehensive retirement plan.
Ellie Tobin Stubbs, AWMA®, BFATM is a Financial Advisor at Ameriprise Financial Services, Inc. in Barre, Vt. She specializes in paid financial planning and asset management strategies and has been practicing for 20 years. To contact her, ameripriseadvisors.com/ellie.stubbs. 802-622-8060.