HSAs Healthy Balance / Healthy Future

In our 2 previous HSA posts, we’ve reviewed some of the basic characteristics of a Health Savings Account. Let’s look at how they strike a healthy balance between saving for today and the future.

While HSAs are designed to help you save for present medical expenses, they can also serve as a powerful tool that allows you to save for the future. Here are just a few of the reasons why:

• Because funds contributed into HSAs are tax-free, there is an incentive for you to contribute generously up to the annual contribution limit set by the IRS.
• You can take your HSA with you if you leave your company without losing any of the money that you’ve saved and invested.
• You can contribute after-tax earnings at any time (up to the contribution limit). This makes it a great way to save and invest any bonuses or windfalls that you receive.
• You don’t have to spend it on yourself; funds in an HSA can be used by qualified dependents such as a spouse or children.
• Funds contributed to an HSA are tied to a participant-directed investment account. You’ll have the potential to earn a rate of return much like a 401(k).
• Funds withdrawn from an HSA remain tax free as long as they’re used for eligible medical expenses.

This makes an HSA an account that you can manage, contribute to, and maintain your entire life.

How Much Can You Save?

Let’s say you’re 45. You’re able to contribute $2,400 a year ($200/mo.) for 20 years toward your HSA that isn’t deducted for medical expenses. Assuming a 5 percent rate of return you could accumulate the following:

• $48,000 in net contributions
• $35,326 in earnings on your HSA investment

That leaves you with $83,326 at age 65 that you can spend tax-free on future medical expenses. If you were to spend the money on non-medical expenses after age 65, you would only be subject to income tax on the money spent.

This makes an HSA an ideal way to pay for medical expenses in retirement. You can continue contributing after age 65 as long as you are not enrolled in Medicare. If you are enrolled in Medicare, you can continue to withdraw funds for approved medical expenses tax-free.

Want to start saving with an HSA?

If you want open an HSA, you must be enrolled in a qualified high deductible health plan. If you have an HSA, remember any unused contributions at the end of the year will carryover to the next year. Check to see if your employer makes a contribution to your HSA. You can invest those funds too. Not sure how much to contribute? Our HSA Calculators can help. Visit our Participant Education Center to learn more.