Do you have the option of contributing to an HSA for medical expenses? Why does this matter? Don shares why an HSA can provide big benefits later on and in retirement.
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Do you have an HSA? Are you using it to its full potential? On today’s show we discuss the value an HSA can bring and how it can be a strategic element of your retirement plan.
An HSA (short for health savings account) is a type of account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. An HSA can be used to pay for deductibles, copayments, coinsurance, and other medical expenses. Think of it like an IRA for medical expenses. You get an upfront tax deduction on your contribution and you can use the money to pay medical expenses tax-free.
The HSA goes along with a high-deductible health insurance plan. This may be an option available with your employer’s health insurance offerings or you can get one if you are self-employed. The deductible is what you pay in medical expenses before the plan kicks in. Don shares what these costs could mean on an annual basis should you hit the deductible.
The best part about the HSA are the triple tax benefits. You get an upfront tax deduction, tax-free growth, and tax-free withdrawal when the money is used for medical expenses. But you need to pay attention to the rules. A withdrawal that is not for medical expenses will be subject to the ordinary income tax plus a 20 percent tax penalty!
Even if you switch jobs or retire, the HSA continues to be your account. So, what happens with an HSA in retirement? These funds can be used for eligible medical expenses, including Medicare Part B, Part D and long-term care insurance as well as out-of-pocket dental and medical expenses. Not only that, but did you know that you can reimburse yourself for previous medical expenses? If you are contributing to an HSA for 20-30 years prior to retirement, it could be worth several hundred thousand dollars by the time you retire and can end up saving you tens of thousands of dollars in taxes. Do you have an HSA?
Listen to the entire episode or skip ahead using the timestamps below.
[1:17] – Delta is making waves.
[6:54] – What is the hidden value of an HSA?
[9:28] – How is an HSA different from a typical health insurance plan?
[11:56] – What are the benefits of an HSA?
[13:36] – What are the rules?
[16:16] – How do you get the money out in retirement?
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Donald W. Cash – CPA, CFP® is an independent advisor. Don began his career in 1985 as an accountant after graduating Rutgers University. In 1990 he entered the field of Estate Planning with a concentration in long term care planning. Don has been advising clients in the baby boomer and retirement market for 20 years. He has helped over 1,000 families with their planning needs. He advocates a holistic approach to Estate and Financial Planning as has relationships with other professionals including Attorneys, CPA’s, Mortgage Specialists, Insurance Specialists and Asset Managers. Don is married to Cathy and have 4 children, Carly, DJ, Nick and Tori. They live in Freehold, NJ.