HSAs have a unique a triple tax benefit that allows you to contribute to the account tax free, spend the dollars in the account tax free, and earn interest on the money in the HSA tax free. Our Vermont Select plans and Standard Silver CDHP and Standard Bronze CDHP plans are HSA compatible. HSAs work in conjunction with an HSA-eligible health plan that meets IRS guidelines. An IRA, on the other hand, does require a minimum annual distribution when you reach age 70 1/2.A Health Savings Account (HSA) is a tax-advantaged medical spending and saving account. In other words, you can keep saving and investing your HSA, tax-free, without having to take money out each year. Funds can roll over year after year, earning interest and investment returns tax-free. The second difference is that an HSA does not require a minimum annual distribution. At this point, if you choose to use your HSA for non-medical related expenses, you’ll only pay the income tax, and avoid the 20 percent penalty that would apply before age 65. But if you use your IRA for medical expenses, you’ll be taxed.Īnd as mentioned earlier in this article, you can use your HSA funds on whatever you want as well, just like an IRA, once you turn 65. With an IRA, you can use your money for whatever you want to, including medical expenses. And at age 65, you can use your HSA funds to pay for Medicare and other healthcare premiums, tax-free. The tax-free nature of saving, investing or spending your HSA funds - for medical expenses - is unmatched. First, the HSA is designed to help cover medical expenses now and in the future. There are two main differences between IRAs and HSAs. But if you need health care as you age, an HSA could be a better option. Truth: It depends on what you are going to use the money for.Īs far as investments go, an IRA could be a better bet for covering non-medical related expenses in retirement. "You’d be better off with an IRA than an HSA." Remember, as long as you had an HSA when your expense occurred, you can use HSA funds years later. Running low on your HSA funds? Again, save those receipts and documentation, then reimburse yourself later when your HSA is replenished. If you save your HSA funds for years, the tax-deferred growth and savings could multiply considerably. Of course, this eyeglass example demonstrates a small amount of tax-free savings. Keep your receipt and pay yourself back when you’re ready with your HSA funds, which will have been saved (or invested) tax-free, and you’ll be reimbursed tax-free, too. Let’s say you buy new prescription eyeglasses with cash. Just make sure you keep your receipts or upload them online for safekeeping. Tomorrow, next month, or into the next decade (and beyond) are all okay. It’s up to you to decide when to reimburse yourself for your health care expenses. In fact, it can be advantageous to pay out-of-pocket for health care expenses you can afford to cover now, and keep saving (or investing) your HSA funds tax-free. It’s not mandatory to pay for every medical expense from your HSA, every time. Keep your receipts and make a tax-free withdrawal anytime in the future. "You must use it for every medical expense." If you’re enrolled in a HSA-qualified health plan through your employer, you can easily open an HSA to help pay for current medical expenses, or save money for future medical expenses.ĭid we say this money can be saved tax-free? See Myth 4 to learn more about this benefit booster. How are you going to pay for your medical costs during (your potential 30-year) retirement? Pairing an HSA-qualified health plan (also known as a high deductible health plan) with an HSA is a great place to start. In fact, health care costs are surpassing inflation by 4.5 percent annually. Plus, health care costs show no signs of slowing down. This doesn’t include long-term nursing care, which could bring the grand total to $390,000. A couple retiring in 2016 will need $260,000 to cover their medical costs assuming they live to the average life expectancy. These numbers are important because if you retire at 65, the average retirement age, you could be looking at anywhere from 15 to 30 years of health care expenses. According to the Centers for Disease Control and Prevention, these are average life expectancies for women and men, respectively, in America. There are some pretty tough (but true) numbers coming your way: 81 and 76.
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