Everyone knows about 401 (k) and IRA, but there is another means of retirement savings, which has recently received much attention: Health Savings Accounts (HSAs). Most people think of HSAs as a tax-friendly way to save for future medical expenses, but they have much to offer.
Here's a closer look how they work and how you can use HSA to supplement your retirement
Can I contribute to HSA?
To qualify for HSA, your health insurance policy must be Health Insurance (HDHP). This is defined as a plan with a deduction of $ 1350 or more for individuals or $ 2,700 or more per family. Once you've signed up for the plan, you can open an HSA account with your bank and start paying for funds. If your employer offers the health insurance plan, your company can create an HSA for you as an employee compensation.
Lone adults can contribute up to $ 3500 for HSA in 201
All the money you pay after tax can be deducted from your taxable income for the year. If your employer's health insurance plan is equipped with an HSA option, you may be able to import tax dollars directly to HSA and your employer can match some of your contributions. However, the total contributions you and your employer make to your account may not exceed the annual contribution limits.
Some HSAs support your cash while others allow you to invest in mutual funds or other investment products just like you would 401 (k) or IRA to help your savings grow faster. If you decide to invest your HSA, think about allocating funds in a similar way to your 401 (k) and IRA funds to ensure that your investments match your risk tolerance and investment goals. You may need to save a certain amount before the bank allows you to invest the amount.
Unlike Flexible Accounts (FSAs), the money in your HSA is transferred from year to year, so keep it until you have to spend it, You can also take HSA with you if you leave your current job , although you will not be able to make new contributions unless you comply with your health insurance plan.
Why can I use HSA distributions? You have the right to receive distributions from your HSA at any age as long as you use them for qualified medical expenses – pay for hospital bills, prescription medications, specialized visits and other medical expenses.
And the best part is, you will not pay taxes on these withdrawals. For this reason, it's a great place to hide emergency money to help you cover your costs if you become seriously injured or sick. You can also save money on planned medical expenses such as pregnancy and childbirth, emergency surgery, long-term care and mental health treatment or substance abuse.
But HSAs have another benefit for the elderly, which few realize. Upon reaching the age of 65, you can also use HSA's non-medical spending, even though you will pay income tax on these withdrawals. You can also make non-medical downloads if you are under the age of 65 but you will pay 20% penalty, which makes it seldom desirable.
Another Benefit to HSA: After you are 65 years old, HSA is similar to traditional IRA or 401 (k), but unlike these pension accounts, HSA does not have the required minimum distributions (RMDs). The government requires you to start accepting these distributions from all pension accounts, except for Roth IRAs aged 70 and half, to make sure you get your tax deduction in your earnings. The amount you need to withdraw depends on your age and on the value of your retirement accounts. The problem with RMDs is that they can force you to take more than you want by pushing your taxable income into a higher tax category. But not accepting RMD is not an option unless you want to pay a 50% penalty on the amount you had to withdraw.
You do not have to worry about that if you keep your money in the HSA. Your money can be postponed for as long as you want, and qualified medical expenses distributions will continue to be tax-exempt even after you can no longer make any contributions to your account. It's a good idea to contribute at least as much as your health insurance can deduct from your HSA, even if you do not plan to use it for retirement savings. This way, if unexpected medical expenses arise, you can cover it without deducting your credit card to face your deduction before the insurance begins. But for a small medical expense, you might want to pay out of your pocket by leaving your HSA savings
HSA can be a great addition to your other savings savings accounts, but you have to carefully consider its terms. If your account allows you to invest your money in mutual funds, it also charges cost factors. These are annual fees that all shareholders pay, and they can prevent your money from growing. Look at the prospect of the funds you invested to see how much you pay in the fees. If it is more than 1% of your assets every year, your HSA may not be the most effective pension reserve for you. Consider shifting your money to more affordable investments, such as index funds, or not investing HSA resources at all, and instead contribute most of your savings to 401 (k) or IRA.
HSA from your salary if your employer allows this or the budget of a certain amount in dollars each month that you would like to contribute. Track the limits of contributions each year and do not exceed them or you will pay income tax and 6% excise tax on surplus.
With all tax benefits, there is no reason not to open an HSA if you have one. But like all your retirement savings accounts, you need to evaluate the HSA carefully to find out what you are getting and what the bill may cost you.