The hidden value of HSA accounts: retirement savings

July 9th, 2015 Mark Sandvig
Hidden value of HSA accounts

When you think of tax advantages for retirement, you typically think of an IRA, 401(k) or 403(b). The latest to join the array of retirement savings strategies is a health savings account, or HSA.

The first thing to know is that an HSA is designed and to be treated as a way to build savings for health-related needs you may have. For a refresher on HSAs, you can read this article, which shows you the attributes and benefits of the program.

HSAs have been in existence for over a decade. Recently, a report from the Employee Benefit Research Institute found that a person making contributions in their HSA for 40 years could garner quite a bit of savings, if they did not withdraw any funds from the account. This sparked a whole new way to look at HSAs and how you can make the most of them.

Health plan for retirement?

Yes, the HSA’s primary purpose is to be a savings account to offset the expense of high-deductible health plans. Though they aren’t meant to be retirement plans, they are treated like IRAs according to the Internal Revenue Service regulations. You can add pretax dollars and deduct contributions to the account. The money added grows tax-free, much like an IRA or 401(k). This is good news!

In 2015, if you have a deductible of at least $1,300 or $2,600 for a family plan, you can add up to $3,350 each year for an individual plan, or $6,650 for a family plan (the family plan contribution, only, will rise to $6,750 in 2016). If you’re over 55, you can add $1,000 more to individual or family plan contributions.

Here are some reasons health savings accounts are being used as retirement savings vehicles:

  • If you’re already maxing out your traditional retirement savings plans, like your 401(k) or IRA. The HSA can be used in addition to the other retirement options.
  • An HSA can be set up through your employer, like a 401(k). But, you can open an account from any financial institution that offers them – such as MidWestOne.
  • Your HSA funds roll over from year to year. There is no “use it or lose it” stipulation.
  • Funds can be withdrawn tax-free for any qualified medical expense.
  • It’s possible to keep your HSA in stocks, bonds or other mutual funds, depending on where you set up your HSA.

How can you reap the benefits of using an HSA for your medical expenses?

What if you are only interested in using your HSA for the purpose it is actually intended? You can still find ways to put your account to good use. Here are some good tips to keep in mind:

  1. If you have a prescription for your medications you can use your HSA to pay for them, including over the counter medications.
  2. Nontraditional medical treatments, like massage therapy, chiropractic care and acupuncture, may qualify for HSA expenses as long as they’re covered by your high-deductible health plan with a prescription from your physician.
  3. Be aware of the hefty penalty for using HSA funds for something other than medical expenses before age 65. There is a 20 percent tax on any amount used for non-medical purposes.
  4. After age 65, you can no longer contribute to your HSA.  The good news is you can make penalty-free withdrawals.
  5. Using funds from your HSA is very easy. It’s like using your checking account. You may receive blank checks, debit cards or both. Online purchases may be made with your debit card.

Choose what is best for you.

Whether you choose to use your health savings account as a retirement vehicle or for medical expenses, the tips above give you options for deciding which options are best for you and your financial situation.

If you have any questions, the bankers at MidWestOne are always willing to help you answer any questions regarding health savings accounts and how you can make the most of them. Stop in to see us at any of our locations or find out more information about HSAs here.

About the author

Mark Sandvig is Mortgage Banking Officer at MidWestOne Bank. NMLS number: 641615

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