“Achieving less stressful, more successful retirements means you must find multiple ways to save money. Starting and contributing to an HSA is one way to accomplish this task.” –Jerry Yu
If you enroll in specific high-deductible health plans (HDHP) at work, your employer may offer you the chance to participate in a health savings account. (HSA) HSAs are tax-advantaged accounts employees can use to pay for qualified medical expenses not covered by their health insurance, for instance, deductibles and co-pays.
Health Savings Accounts or HSAs can be powerful tools for women to create better financial futures. A properly-funded HSA can help you save money on taxes and health care expenses, both now and in the future. HSAs give you greater flexibility and efficiency than other kinds of health spending accounts. They also allow you to decide the amount of pretax income you will contribute from each paycheck, subject to IRS limits. You can remove the money tax-free when you need to withdraw money from the HSA to pay for qualified medical expenses. It’s crucial to understand that if you use your HSA money to pay for non-qualified medical expenses, the IRS will levy a 20% penalty.
Money in a health savings account remains as cash savings, or all or part of it can be invested, depending on the rules of your particular plan. Many HSAs have minimum balance requirements before you can invest your money. Interest or investment gains you earn in the account are tax-free, and you can contribute until you are eligible for Medicare, typically age 65. This money is yours for life, even if you change jobs or healthcare plans or retire.
As mentioned, having an HSA can help you save more money to put into your retirement accounts. If you are a reasonably healthy person, plans that qualify for HSAs usually have lower monthly premiums, saving you money over time.
HSAs offer three significant tax advantages in the form of initial tax-free contributions, tax-free growth in the account, and tax-free distributions. Also, if you retire age 65 or older with money still in your HSA, you are allowed to use that money as you please and not just for health expenses. Of course, you will pay taxes on those funds, but you will not get the 20% penalty.
For women, who tend to earn less and have less money in retirement accounts, HSA tax savings can mean a bump in the amount of money they have to fund their retirements.
The chart below gives you an idea of the money you might save by participating in an HSA.
Summing it up: Women who want to protect themselves and their retirement plans should use every tool available, including health savings accounts.
Health savings accounts, especially when started early in your career, give you significant tax savings that can mean more money to invest or offset medical expenses. If you manage to stay healthy when you retire, you could also have leftover money in your HSA account to turn into an income stream using an annuity or other safe money product.
Not every high deductible employer health plan qualifies for HSAs. You will need to ask your human resources department or meet with a financial advisor who has experience with health savings plans.