Hint: It probably should
A lot of people don’t realize it, but the line between health care and retirement strategy has disappeared. Considering the average health expenses incurred during retirement (~$300K according to Fidelity), our health plan is our retirement plan. And there doesn’t seem to be any going back.
Fortunately, there are ways to tether your retirement plans to your health care strategy. Health Savings Accounts (HSAs) give consumers an integrated, whole-person approach to retirement savings.
In terms of investment options, there is none better. In terms of health planning, it’s a route that you can’t afford to miss.
Health Savings Accounts: The Only Investment Vehicle with a Triple Tax Advantage
The “big deal” about HSAs is that they combine three different tax advantages on your hard-earned dollars. Here’s how it works:
- You contribute a pre-tax amount to your HSA
- The money is allowed to grow without being taxed
- The money can be used for qualifying medical costs, tax free
When compared with the staggering Social Security and Medicare taxes associates with 401(k) contributions (15.3%!) the advantage is clear. HSAs turn a large chunk of your normal income into tax-free income.
For those who max out their contribution, the taxable income reduction for families comes to $7100. For couples over the age of 55, this reduction comes to $9100. That’s a lot of cheese, as they say, and it can come at a time when you need it the most.
Why You Should Fund Your HSA First
Anyone who holds an HSA should be sure to max out their contribution before funding their IRA or 401(k). This is because HSA contributions aren’t only tax deductible, they are also not subject to Medicare or Social Security taxes. That’s not something that you can say about your IRA or 401(k).
Perhaps even more importantly, you can withdraw money from your HSA tax-free! Caveat – tax-free withdrawals are for money used to cover medical expenses. Other withdrawals after age 65 are treated similarly to IRA withdrawals.
How HSAs Make All Your Medical Expenses Tax-Deductible
Even people who have maintained an HSA for years can forget this part. When using a Health Savings Account to pay for qualified medical expenses, all of those expenses essentially become tax deductible. This includes basic costs like doctor visits chiropractor visits, but also includes OTC medicine, feminine hygiene products, and even toothpaste!
With an HSA, it is possible to make a large number of necessary, inevitable costs fully tax deductible. There is no other investment strategy with this kind benefit. In addition, it aligns with our core belief that everyone should have direct control over their health care dollars.
Who is Allowed to Setup and Fund an HSA?
In order to enjoy the yearly savings of an HSA, it is necessary that your insurance plan is HSA-qualified. While this generally means that you must have a High Deductible Health Plan (HDHP), not all HDHPs are HSA-qualified.
Combining the Triple Tax Advantage with a Health Sharing Program
While the long-term investment benefits of an HSA are undeniable, they can get even stronger. By enrolling in an HSA qualified Health Sharing Program, individuals and families can add immediate, short-term savings to the portfolio.
Health Sharing Programs, also known as Healthsaring or HCSMs, are not technically health insurance. They are a clever alternative that provides shared coverage among their membership for essential services. They also lack the strict regulations of an ACA plan, which makes them about half the cost of traditional insurance.
Combining a health sharing program with an HSA is an effective way to double the amount of money you’re saving each month for retirement. But health sharing isn’t for everyone. Many providers have restrictions or waiting periods on pre-existing conditions. In addition, there are no guaranteed preventative benefits like there are with an ACA plan.
Is Your Insurance Plan HSA-Qualified?
Even if you have a HDHP, there is a chance that it is not HSA qualified. Because only HSA-qualified accounts can work in conjunction with an HSA, it might be time to change up your coverage.
If you aren’t sure whether your plan is HSA ready, or if you want to learn more about Health Sharing Programs, give us a call. Your Personal Benefits Manager can get you into a plan that matches your current coverage needs. They can also help you understand how the triple-tax-advantage of an HSA can supercharge your retirement savings.