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Why an HSA belongs in your retirement strategy



With the increasing likelihood that Social Security and Medicare benefits may be reduced in the future, it’s more important than ever to use every technique available to maximize your retirement savings.

Estimates suggest even a healthy 65-year-old couple will need at least $275,000 to cover retirement health care costs. A Health Savings Account, or HSA, provides a way to save that money without paying taxes. An HSA account is available to individuals enrolled in a high deductible health insurance plan.

First, these individuals can fund their HSA through a tax-deductible contribution or pre-tax payroll deduction. Second, any interest and investment gains are tax-free. Finally, the funds can be withdrawn tax-free to pay for qualified medical expenses- a triple tax advantage over a traditional savings account.

There is no requirement to use HSA funds in the year of contribution, which means funds can grow on a tax-favored basis for future health care expense needs.

For 2018, family contribution limits are $6,900, or $7,900 if you are 55 or older, and those amounts are indexed for inflation in future years. If you start contributing the maximum even as late as age 55, and earn 3 percent per year, you could have more than $90,000 to pay for your retirement health care by age 65. If you start contributing the maximum as early as age 40, you could have saved almost $270,000. These funds will continue to grow tax-free in retirement until you need them.


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