November 30 , 2023 The Beacon • 21
Health Savings Account can boost your savings
Dear Savvy Senior ,
I ’ m interested in contributing to a Health Savings Account to help boost my retirement savings but would like to better understand how they work . What can you tell me ?
Almost 60
Dear Almost ,
An HSA is a fantastic financial tool that can help you build up a taxfree stash of money for medical expenses now and after you retire . But to qualify , you must be enrolled in a high-deductible health insurance plan . Here ’ s an overview of how they work and how you can open one .
HSA rules
HSAs have become very popular over the past few years as the cost of healthcare continues to skyrocket and because more and more Americans have high-deductible health plans .
The great benefit of an HSA is the triple tax advantage that it offers : Your HSA contributions can be deducted pretax from your paycheck , lowering your taxable income ; the money in the account grows taxfree ; and if you use the money for eligible medical expenses , withdrawals are tax-free .
And if you change jobs , the HSA moves with you .
To qualify , you must have a health insurance policy with a deductible of at least $ 1,500 for an individual or $ 3,000 for a family in 2023 . In 2024 the deductible rises to $ 1,600 for an individual or $ 3,200 for a family .
This year you can contribute up to $ 3,850 if you have single health insurance coverage or up to $ 7,750 for family coverage . In 2024 you can contribute significantly more — up to $ 4,150 for single coverage or up to $ 8,300 for family coverage . And people age 55 and older can put away an extra $ 1,000 each year . But you cannot make contributions after you sign up for Medicare .
The money can be used for out-of-pocket medical expenses including deductibles , co-payments , Medicare premiums , prescription drugs , vision and dental care , and other expenses ( see www . IRS . gov / pub / irspdf / p502 . pdf , page 5 , for a complete list ) either now or when you retire for yourself and your spouse as well as your tax dependents .
Unlike a flexible spending account , an HSA doesn ’ t require you
to use the money by the end of the year . Rather , HSA funds roll over year to year and continue to grow tax-free in your HSA account for later use .
In fact , you ’ ll get a bigger tax benefit if you use other cash for current medical expenses and keep the HSA money growing for the longterm . Be sure to hold on to your receipts for medical expenses after you open your HSA , even if you pay those bills with cash , so you can claim the expenses later . There ’ s no time limit for withdrawing the money taxfree for eligible medical expenses you incurred any time after you opened the account .
But be aware if you do use your HSA funds for nonmedical expenses , you ’ ll be required to pay taxes on the withdrawal , plus a 20 % penalty . The penalty , however , is waived for those age 65 and older , but you ’ ll still pay ordinary income tax on withdraws not used for eligible expenses .
How to open an HSA
You should first check with your employer to see if they offer an HSA and if they will contribute to it . If not , you can open an HSA through many banks , brokerage firms and other financial institutions , as long as you have a qualified high-deductible health insurance policy .
If you plan to keep the money growing for the future , look for an HSA administrator that offers a portfolio of mutual funds for long-term investing and has low fees . Some of the top-rated HSA providers in 2023 are Lively , HealthEquity , Optum- Bank , Fidelity , HSA Bank and Bank of America .
After setting up your HSA plan , adding money is pretty straightforward . Most plans let you do online transfers from your bank , send checks directly or set up a payroll deduction if offered by your employer . To access your HSA funds , many plans provide a debit card , and most allow for reimbursement .
Send your senior questions to Savvy Senior , P . O . Box 5443 , Norman , OK 73070 , or visit www . SavvySenior . org .
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