A loving mother is a blessing beyond words. I am a father of three young children, and I have the privilege of watching my wife love them more every day. As their dad, I am their loving protector, but their mom fills a place in their hearts that I cannot.
You may be wondering how I am going to tie Mother’s Day into an article about finance. Since this is my article, and my mother and my mother-in-law have worked in healthcare as nurses for their entire careers, I decided a message about healthcare planning using a Health Savings Account would be a nice way to honor them. I know it’s a stretch.
Health Savings Accounts (HSA) are only allowed inside of High Deductible Health Plans (HDHP) that are offered by your employer. Not every plan offers them (around 22% of employer plans currently do), but due to their popularity, more plans are adding them as an option each year. For the cost of having a higher deductible, you are given the opportunity to make tax-deferred contributions to your HSA each year. In 2022, individuals can contribute up to $3,650 per year, and families can contribute up to $7,050 per year.
HSA’s receive a triple-tax benefit because they go into the account tax-deferred; the growth on the contributions is tax-free, and the distributions come out tax-free as long as you use the funds for medical purposes.
Through conversations with our families, we have found that most people reimburse themselves from their HSA as soon as medical costs are incurred, even though the families had enough money from income or in their savings to cover the costs out-of-pocket. Essentially, they see the HSA as a yearly bucket of savings that must be used. Instead, you should look at your HSA as a retirement savings vehicle that is centered on healthcare costs.
Our recommendation is not to use your HSA account prior to retirement unless you absolutely must, because the HSA is an extremely valuable bucket of savings for healthcare costs during retirement. The most common use of an HSA that most people do not know is the reimbursement of Medicare premiums. Depending on the amount in your HSA, it could cover those premiums for many years of your retirement.
For those wanting to retire before age 65 when Medicare coverage begins, healthcare insurance is one of the largest costs that must be accounted for. With a well-funded HSA, you can give yourself a way to pay for those expensive health insurance premiums without dipping into your regular cash flow.
HSA’s can also be used to reimburse long-term care insurance premiums, in-home nursing care, retirement community fees, nursing home fees, and other long-term care services.
An HSA provides tax-efficiency and control of your standard of living by reducing your cash-flow needs in retirement. Whether you are just starting out or are approaching retirement, you should consider an HSA as another savings vehicle to incorporate in your plan.
Happy Mother’s Day!
The Financial Enhancement Group is an SEC Registered Investment Advisor. Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory services can be provided by Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.