Making the Most of Your Health Savings Account

How your HSA can be a useful tool.

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Don’t ignore your health savings account (HSA) when planning for retirement. An HSA is a tax-advantaged medical savings account available to taxpayers enrolled in a high-deductible health plan. Funds contributed to an HSA are deductible in the year they are contributed. The maximum contribution in 2013 is $3,250 for a single insured and $6,450 for a family plan. There is an additional $1,000 allowed as a catch-up for plan participants who are age 55 or older.

Withdrawals from an HSA are tax-free when made for qualified medical expenses. Withdrawals not for qualified medical expenses are subject to income taxes and a 20% penalty. The 20% tax penalty is waived after reaching age 65 or if you become disabled, but the withdrawal is still subject to income tax. The HSA essentially works like a traditional IRA in this respect.

There is a strategy for using your HSA like a Roth IRA. Make the maximum contribution each year and invest the funds. Save your medical expense receipts, don’t submit them for reimbursement from the HSA. The funds will grow tax-deferred inside the HSA and can be withdrawn tax-free in the future by submitting the old receipts for reimbursement. The strategy allows you to benefit from the long term untaxed growth in the account.

The IRS allows HSA account owners to defer to later years distributions from HSAs to reimburse qualified medical expenses, as long as the expenses were incurred after the HSA was established. There is no time limit on when the distribution must occur. However, to be excludable from gross income, the owner must keep records sufficient to show the distributions were exclusively to reimburse qualified medical expenses. Records must also show the qualified medical expenses have not been previously paid or reimbursed from another source, or that they were taken as an itemized deduction in any prior taxable year.

Will Your Money Last Through Retirement?

No one wants to run out of money. But without goals and a solid plan,
how can you know for sure whether you’re on the right track?

Will I be able to maintain my current lifestyle?

What will my monthly income be in retirement?

Can I protect my hard-earned savings and still
have the income I want?

Rodgers & Associates answers questions like these every day.

Get Personalized Answers
2025 Lititz Pike, Lancaster, PA 17601
Phone: 717-560-3800, Toll-Free: 888-876-3437