A HSA is a Health Savings Account that offers a tax-advantaged savings account for individuals with high-deductible health plans. Not all employers offer HSA accounts to their employees, but many do. If you’re unsure whether your employer offers a HSA, check with your HR department or benefits administrator. Ideally, they can tell you about your employer’s benefits package, including whether a HSA is offered, the contribution limits, and any other details you need to know.
If your employer does offer a HSA, they may also offer contributions to your account as part of your benefits package. This means that your employer will contribute a certain amount of money to your HSA each year on top of your contributions. If your employer offers a HSA, taking advantage of it’s usually a good idea since it can help you manage your healthcare expenses and save for retirement.
To get a HSA account, you need to meet the eligibility requirements, which include the following:
- Enrolling in a High-Deductible Health Plan (HDHP): This plan has a minimum deductible of $1,400 or $2,800 for families in 2022. You can usually enroll in an HDHP through your employer or purchase one on your own through a health insurance marketplace.
- Not Being Enrolled in Other Health Coverage: You cannot be enrolled in other health coverage, such as Medicare or another health insurance plan, that is not an HDHP.
- Not Being a Dependent on Someone Else’s Tax Return: If you depend on someone else, you cannot open a HSA account.
Once you meet the eligibility requirements, you can open a HSA account through a bank, credit union, or other financial institution that offers HSA accounts. Your employer may also offer a HSA account as part of your benefits package.
When you open a HSA account, you must provide your personal information and HDHP coverage details. You’ll also need to choose how much you want to contribute to the account. Note that you can change your contribution amount any time during the year up to the annual contribution limit.
Here are some steps to properly use a HSA account for retirement:
- Understand the Contribution Limits: For 2022, individuals can contribute up to $3,650, and families can contribute up to $7,300 to their HSA accounts. An additional $1,000 can be contributed by those 55 and older.
- Maximize Contributions: To maximize the tax advantages of an HSA, try to contribute the maximum amount allowed each year. Contributions to a HSA are tax-deductible, reducing your taxable income.
- Invest Your Contributions: Many HSA providers allow account holders to invest their contributions in various investment options. By investing your contributions, you can potentially earn higher returns on your savings, which can help your retirement savings grow.
- Save Your Receipts: Unlike flexible spending accounts (FSAs), HSA funds are not subject to yearly expiration. You can use your HSA funds to pay for qualified medical expenses anytime, including retirement. Keep track of your medical expenses and save your receipts, so you can withdraw funds from your HSA tax-free when needed.
- Use HSA Funds in Retirement: Once you reach age 65, you can withdraw funds from your HSA for any reason without penalty. However, the withdrawal will be taxed if you withdraw funds for non-qualified expenses.
- Consider Your Overall Retirement Plan: While a HSA can be a valuable tool for retirement savings, it’s important to consider your overall retirement plan. Ensure you’re also contributing to a 401(k) or IRA and that your investment portfolio is diversified.
- Meet with a Financial Advisor: If you’re unsure how to use your HSA account for retirement, consider consulting with a financial advisor. They can help you develop a retirement plan that takes advantage of all available tax-advantaged accounts, including your HSA.