Health Savings Accounts (HSAs)

With a crumbling Social Security program, it is becoming more important for people to squirrel away money for their retirement any way they can.Health Savings Accounts (HSAs) can be a fantastic retirement tool if used correctly, but they are often misunderstood. HSAs are so great because they have the potential to pay a significant portion of your medical costs throughout your retirement if they are funded and maintained correctly.An HSA is similar to a retirement account in that (1) contributions are tax-deductible, and (2) funds in an HSA can be invested to grow beyond the initial contribution. However, HSAs are better for paying medical expenses when it comes to retirement because you don’t have to pay income taxes on qualified distributions for medical payments.As of 2021, HSAs have a $3,600 annual contribution limit. So, hypothetically, you can contribute $3,600 for the next three years and, with an 8% yearly return on the account, you can have over $90,000+ to pay for health costs in thirty years! Due to the benefits of compounding, the sooner you contribute to an HSA, the better!There is a catch—not everyone can qualify for an HSA. An HSA was designed to supplement a catastrophic health insurance plan and not as a stand-alone product. Unfortunately, that means you can only qualify to open an HSA when you have a high-deductible, catastrophic health insurance plan.Generally speaking, catastrophic plans are only cost-effective for people who are very healthy or very sick. So, you’ll want to take a close look at your average medical costs and the financial impacts of a catastrophic plan before considering one.If you’re interested in exploring an HSA, I recommend speaking with your health insurance rep, HR rep, and financial advisor. Good luck!