If you qualify for a health savings account (HSA), it should be an important
part of your retirement planning. HSAs are available to people who are
covered by a high deductible health care plan, are not eligible to be claimed
as a dependent on another person’s tax return and are not entitled to
Medicare benefits. HSAs are a triple tax free benefit. The contributions go
in to the account pre-tax, earnings grow tax free and withdrawals are tax free
if used to pay for qualified medical expenses (including long-term care
One of the strategies to consider is to make contributions to the account but still pay for medical expenses out of pocket. This gives the account a chance to grow until you qualify for Medicare. It’s estimated that a retired couple will spend over $265,000 in out of pocket medical expenses in retirement. Having a HSA account with a healthy balance can reduce the amount of money you have to take out of your IRA to pay for medical expenses in retirement.
Contribution limits for 2016 are $3350 for a person with single coverage and $6750 for family coverage. Once you turn 55, you’re eligible for a catch up contribution of $1000. Both spouses can make a catch up contribution if they are covered by a high deductible plan. This means that a 55 year old spouse could open their own HSA just for the catch up contribution which would allow a total contribution for the family of $8750 for the year. Many HSA providers offer an investment account option where mutual funds can be purchased for longer term investment timelines. This allows you to potentially earn more on your savings to help you in retirement.