You recently landed a new job and chose a health savings account (HSA) and high-deductible health plan as part of your benefits. Smart choice! You’re young, healthy, and ready to start saving for your future health care.
Take Advantage of HSA Tax Benefits
Your HSA offers a triple tax advantage. First, your contributions (made on your own or from your employer) are 100 percent tax deductible. Second, all interest earned on your HSA funds is tax-deferred, so your funds grow without being taxed. Third, funds pulled from your HSA to pay for eligible medical expenses are 100% tax-free. This means you can take money out of your account or use your HSA debit card to pay for prescriptions, dental care, new glasses, or copays at the doctor’s office without being taxed.
Set up Your HSA Contributions
Your HSA contributions can typically be put on autopilot year-after-year. Since you chose a health savings account and high-deductible health plan (HDHP) through your employer, you can choose to contribute a set amount each month. For 2022, the maximum yearly contribution limit for a single plan is $3,650 and the maximum yearly contribution for a family plan is $7,300.
Invest Your HSA Funds
One of the many benefits of an HSA is the ability to invest excess funds. Maybe you’ve saved more than you expected or happened to maintain an exceptional health history, you can invest your excess HSA funds to grow your future healthcare savings. The returns and earnings you make on the investment are all tax-free. Once you turn 65, you can use those HSA funds for eligible healthcare expenses, including long-term care. If you happen to need those funds before the age of 65, you can still withdraw funds tax-free as long as they are used on eligible medical expenses.
Before choosing which retirement saving tool is best for you, it is always beneficial to explore your options with a financial advisor. Meeting with a financial advisor will help to ensure you’ll meet your savings goals before retirement, based on your ideal savings plan. Compare the pros and cons for each account and outline the tax implications for each. One of the perks of utilizing an HSA as a retirement savings tool is that you have the option to withdraw funds before retirement, if needed.
HSA funds can be used on a variety of eligible healthcare expenses at all stages of life. Download our HSA Eligibility Checklist today for more insight on what items are included.