Pharmacy Is Right For Me

When most people think of saving for retirement, they think of using a 401(k). There are other options out there and the benefits may surprise you. From saving on taxes to allowing for disbursement to your beneficiaries after you pass away, using a Health Savings Account may be an alternative way to fund your retirement. There are a lot of advantages when it comes to using a Health Savings Account and you may not even realize the potential.

What is a Health Savings Account?

A Health Savings Account (HSA) can be a way for people to save for medical costs and expenses not covered by their health plans. Employees and employers can contribute to this tax-advantaged account up to a maximum amount each year. These contributions accumulate and may be invested over time. You can use the money in your account to pay for any number of qualifying medical expenses. Paying for prescriptions, over-the-counter medications, or expenses not covered by your medical, dental, or vision plans are all examples of qualifying expenses.

If you’re faced with a high-deductible, a Health Savings Account is one way to cut your costs. The deductible is the portion you are required to pay out-of-pocket after insurance pays their portion. In 2019, the IRS announced that the maximum amount you could contribute to a Health Savings Account is $3,500 for an individual or $7,500 for a family. If you’re over 55 you can contribute an additional $1,000. All of these include contributions made by an employer.

One advantage of using an HSA is that it is triple tax-advantaged. This means you get a deduction for every year you contribute, your money can grow tax-free and anything you withdraw isn’t taxed when it’s used for qualifying health-related expenses.

A Health Savings Account makes sense for retirement

While you may not traditionally think of a Health Savings Account as a way to fund your retirement, there are some good reasons to consider it. First, you can technically withdraw from an HSA like you would an IRA. You don’t actually need to use it only for medical purposes. For example, after the age of 65, you can withdraw your funds for any reason you’d like. You only pay income taxes on the withdrawal just like you would with an IRA.

Let’s say you don’t want to pay income taxes on what you withdraw. Technically you can pay for your medical expenses out of pocket and keep this money growing and compounding not touching any of it during your lifetime. Meanwhile, you can keep a receipt for everything you pay for over the years. According to IRS Publication 969, you can ask for reimbursement anytime throughout the course of your life for a medical expense. This method is a completely legal and viable option. Let’s say over 20 years you’ve incurred $20,000 in qualifying medical expenses and you have the receipts to back them up. Once you produce those receipts, you’ll be reimbursed with a $20,000 check to use however you wish in retirement.

The other nice feature is that you don’t lose any of this money after you pass away. You can leave it to a spouse who can also use it exactly as you did for qualifying medical expenses or you can leave to a beneficiary. If you leave it to a beneficiary such as your children or grandchildren, it gets distributed to them as you wish and it will be fully taxable.

Don’t discount the non-traditional ways to save for retirement and take advantage of tax-advantaged accounts. As with any retirement plan, the most important thing you can do is start early. Everything adds up in the end and you’ll never regret having more when you take the plunge into retirement.