Health Savings Accounts (HSAs) are not just for medical costs, but can also be used strategically in retirement planning. By contributing pre-tax dollars into an HSA and investing the funds, account holders can potentially increase their overall account balance. Contribution limits for HSAs are set at $4,150 for singles and $8,300 for married couples, with a catch-up amount of $1,000 for those age 55 and older. Unlike retirement accounts, you do not need earned income to contribute to an HSA, allowing you to lessen your tax burden even in retirement.
Contributions into an HSA are made with pre-tax dollars while eligible distributions are tax-free. Eligible expenses for HSA funds cover a wide range of medical costs, and non-qualified withdrawals prior to age 65 come with a 20% tax penalty on top of being taxed as regular income. Funds within an HSA do not have to be used in the year they are contributed, and there is no time requirement for when they must be distributed. By holding eligible expenses for reimbursement after retirement but before age 65, funds can be used in early retirement alongside traditional retirement account savings.
For those not considering retirement before age 65, contributing to an HSA can still be beneficial as long as Social Security and Medicare benefits are not being received. By delaying retirement until age 65 or later, Social Security benefits can be maximized, and Medicare enrollment can be delayed without penalty until retirement. Consulting with financial industry professionals for personalized advice is crucial when considering how to incorporate HSAs into retirement planning, tax planning, Social Security, and Medicare. Financial needs are unique to each individual, and professional guidance can help navigate the complexities of planning for retirement with an HSA.
