At SavviHer, we believe in you: the everywoman who consistently gives the world everything she has and more. We believe you have a bright future ahead of you with only the sky as your limit. That said, we also know what challenges you might be up against so this is why we continue to stress the importance of taking your financial situation into your own hands.
When it comes to planning for your retirement, you likely know all about funding your employer-sponsored plan (such as your 401(k), 403(b), or pension) and/or possibly funding an Individual Retirement Account (i.e. IRA). However, there is another very key account to consider adding to your retirement mix: a Health Savings Account.
Yes, HSAs are typically used by eligible individuals as a tax-advantaged way to fund their current health and medical expenses, but did you know that there’s also a way these accounts can help set you up for long-term retirement success?
Here are the three key details you need to know:
You can invest the funds in your HSA the same as you would your other retirement accounts
Simply put, having the ability to invest your HSA contributions is a significant advantage. If you’ve already contributed to a 401(k) or IRA, then you understand the need to prioritize your retirement needs and take advantage of the miracle of compound interest. Do yourself an even bigger favor by also opening a HSA so that you can cover those medical needs in retirement tax-free! Doing so will ensure you can use those other retirement accounts to truly fund your much-deserved forever “out of office” lifestyle.
HSAs can help you pay for your health and medical needs in retirement
Though those retirement days may seem so far away right now, believe us – they’ll be here at some point and those pesky medical bills will be not far behind them. In order to prepare for the medical expenses you may incur later in life, it is prudent to begin contributing to your Health Savings Account now.
According to HealthView, the average married couple retiring at age 65 should expect to pay over $387,000 in out-of-pocket medical expenses. Medicare isn’t free and doesn’t cover everything, so you want to have a plan in place to cover those additional expenses. While you could use your 401(k) or Traditional IRA dollars to cover these expenses in retirement, you will be taxed for the withdrawals you make.
This is where HSAs come in. If you use your HSA funds to cover these medical expenses, all withdrawals from this account will be tax-free. Using the numbers above, paying $387,000 in medical expenses with a HSA instead of a 401(k) could save you nearly $100,000 in taxes, assuming a 20% tax rate. That is a pretty sizable cost-savings!
Certainly – it can be easy to think that a 401(k) is the best way to cover all your costs in retirement, but keep in mind that not all of those dollars are fully yours. By using HSA dollars to pay for your retirement healthcare costs, you can maximize your tax savings and help your retirement funds last longer.
HSA funds can be used for non-medical costs in retirement, too
If you stay healthy in retirement, you might end up with leftover HSA funds you don’t need to spend on medical expenses. Fortunately, once you’re 65 you can use those funds to pay for non-medical expenses with no tax penalty. HSA funds used for non-medical costs in retirement are treated exactly the same as 401(k) funds; you just pay regular income taxes on them. You could also reimburse yourself in a lump sum tax-free for medical expenses you paid for out-of-pocket in the past (since you opened your HSA). Think of all those long drugstore receipts you just swiped your credit card for – those could have been HSA-eligible expenses! This is called shoe-boxing and as long as you keep track of your out-of-pocket expenses, you could have a nice nest egg in retirement.
This means there’s no reason to only put as much in your HSA as you think you’ll need to cover your healthcare costs. Even if you end up with leftover funds in retirement, you can use those dollars to pay for non-medical costs just like you would with any other retirement account.
To put it even more clearly: HSA funds can truly help you fund your retirement. The best way to think of them is as an IRA that will cover all of those medical bills and has the potential to give you even more breathing room in retirement for any other miscellaneous expenses. Sounds like a win-win to us!
How can you establish a Health Savings Account?
It’s simple! All you need to do is follow the steps outlined below to get started today:
- Contact your health insurance provider to assess your eligibility
- Next, do your research to find a Health Savings Account provider that offers:
- A variety of diversified, low-fee investment options
- No investment thresholds or minimum amount requirements
- Dedicated customer service and support
- If you do your research, we’re confident you’ll stumble upon HealthSavings as a premier provider of these accounts. You can get started working with this fantastic team by learning more here.
Get started contributing, earning, and reaping the benefits today. Now is the time to begin planting the financial seeds that will grow throughout your working life to be harvested once you retire. Seeing as how they help you save money on your healthcare costs now, as well as accumulate tax-free funds for the future, HSAs are one of the first seeds you should be planting. Invest in a happy, healthy future now; your future self will be thrilled you did.
This post is sponsored by HealthSavings. We’d like to thank them for their partnership and dedication to helping educate women on their retirement options and empower them to own their financial futures.
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