HSA and retirement?

Open Enrollment Choices?

With open enrollment happening right now or very soon for most United States-based companies, it is worth taking a moment to reflect on choices. Sometimes it is easiest to just enroll in the same benefits, however,  it is recommended that one investigate enrolling in a Health Spending Account (“HSA”).

Health Spending Account

An HSA allows for tax-free deposits each year, which also grows tax-free. HSA account holders are allowed to withdraw these funds from accounts at any time for medical expenses. The only caveat to having an HSA plan is that one must be enrolled in a High Deductible Health Plan (“HDHP”).

An HSA to Grow Your Retirement Plan

But how does this help with retirement? An HSA allows account holders to save money tax-free and it will roll from year to year if unused.This rollover function allows account holders to hold on to this tax-free savings for an extended period of time.. Here are the three key points on why it is so great for retirement years:

1. A retiree typically requires more medical benefits and an HSA provides a pot of tax-free savings to pull from for these expenses.
2. This ‘retirement’ savings that can be used today if needed. Unlike a 401k,  IRA or other retirement plans out there, so long as these funds are used for medical expenses, there is no penalty to use it.. There is no waiting until the retirement years. This makes the savings less risky if medical bills are expected.
3. After the age of 65, a retiree cannot continue to contribute to the HSA, withdrawal from the HSA can occur at any time. It is still tax-free money for medical benefits,but may be used for other expenses so long as the account holder pays normal taxes on the funds.
4. Bonus: As a retiree likely in a lower tax the taxes may be less than during working years.

While this is a very high-level view of HSAs and their potential current and future benefits, employees should always look at all available options to make the decision that makes the most sense. If already enrolled or thinking of enrolling in a HDHP, review the HSA plan your employer offers and see if it is the right fit.