As a working adult you do your best to plan for the future. 401k, IRA, Savings Accounts…those are just a few of the plans you may have in place for your future. But what about your future medical care? Health care costs are rising for everyone, but if you are an older adult, you may face more challenges then most. As you get older the changes of you having additional chronic conditions and medical problems. This can lead to higher medical and prescription costs. 

One option for health insurance coverage is a High Deductible Health Plan (HDHP). Many employers and individuals have moved to these types of plans because of the monthly premium savings. But are you aware of the additional benefit of the HSA account you can open at a financial institution? What about the benefit you get when it comes to your HSA and retirement? Let us explain. 

What is a HSA?

Health savings accounts (HSAs) are tax-advantaged savings accounts that individuals can use to save money for medical expenses. This account is owned by you, not your employer, and money rolls over from year to year. (Unlike a FSA where you “use it or loose it”). You can contribute to your HSA as long as your medical coverage is a High Deductible Health Plan (HDHP). If you switch to another type of health plan, you are no longer eligible to contribute. Also, when you become eligible for Medicare, you are no longer eligible to contribute to an HSA. Regardless of this, the benefits of an HSA can be substantial for adults nearing retirement age.

Click here to learn more about HSA accounts. 

What are the advantages of an HSA?

Because an HSA is paired with a High Deductible Health Plan, that can be a concern for many older adults. Especially if you have chronic medical conditions. These type of health plans have higher deductibles and sometimes higher out-of-pocket costs than a traditional health plan. It is important to remember, however, that the HSA provides a valuable savings component. Your HSA can use used to pay for out-of-pocket costs tax-free or to save money for your future. A few advantages of an HSA include: 

  • Lower Premiums This means that there is more cash to invest in the HSA and to eventually put toward the deductible. (As opposed to paying a higher monthly premium for a lower deductible that comes with a traditional health plan). 
  • Portability – If you leave your job, you can keep the HSA and have the benefit of past investments. 
  • Employer Contributions – Some employers contribute to your HSA as well with either a set dollar amount or will match what you contribute. 
  • Tax-free savings with tax-free interest – HSAs provide tax-free funds to pay medical bills, and funds also accumulate tax-free to save for the future. The best part is, once you turn 65 and are eligible for Medicare, you can use those funds for anything without a penalty. This makes HSAs a valuable retirement savings tool. In fact, HSAs offer more favorable terms than IRAs in terms of saving for retirement health needs. 
  • The catch-up contribution – in addition to the annual limit for the HSA contributions, people ages 55 to 65 can contribute an extra $1,000 per year.

If you are considering an HSA.

Always check the pros and cons before making your decision. If you have many out-of-pocket medical expenses, you may struggle to use your HSA for retirement savings since you will be using the funds for your current bills. The desire to use the HSA as a savings tool may be strong for many and lead them to forgo medical care or purchasing prescription drugs they need. This is never a good idea, as it can lead to more expensive and serious medical complications down the road. 

Talk to your agent about your health plan options and benefits today.