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The Hidden Retirement Benefits of Health Savings Accounts

Discover the not-so-boring side of Health Savings Accounts in our latest episode of Coffee with Waymark. Watch this quick 7-minute video to learn how to make the most of your HSA.

Topics Discussed:

  • Health Savings Accounts (HSAs) overview

  • Traditional uses of HSAs for medical expenses

  • Unique strategy for letting HSAs grow to cover eligible healthcare-related costs in retirement

  • Tax advantages and contribution limits of HSAs


Hi, and welcome to another edition of Coffee with Waymark. Today's episode is going to be on health savings accounts. 

Now some of you may be aware of health savings accounts because you have one through work - some of you may not - but I'll give you a little bit of a one-on-one on it. Long story short, it is a tax-advantaged account that most people use to supplement their expenses, especially because health savings accounts are only available to people when they have a high deductible health insurance plan - which for all intents and purposes means that the first bit of expenses that you incur are typically on your shoulders and the insurance company doesn't kick in until after a high deductible is actually achieved, and then then the health insurance company actually takes care of your medical expenses. 

And so ultimately, it is a savings account that you can that you can have associated with the health savings account. The money that goes into the health savings account is tax free, or you get a tax deduction for it. And then it can grow depending on the nature of the health savings account and what kind of investment options are in it. And when the money is taken out for what they call qualified medical expenses, that money comes out tax-free as well. So you get a tax deduction when you first put it in. And then provided that you use it for qualified medical expenses, that comes out tax free, along with any growth that you have in the account. 

So the contribution limits are actually going up for the upcoming year, which is a good thing, especially for folks that are in the higher tax brackets. As you see in 2023, if you're an individual - you're not married - you can contribute $3,850 plus $1,000 catch up if you're over the age of 50. And if you have a family, then it's $7,750 with the same $1,000 additional contribution that you can make if the owner of the HSA is above the age of 50 - excuse me 55. Hopefully, I didn't say 50. It's age 55 is the catch-up, which is different from 401(k)s. So just the very important detail to remember, for 2024, that's going up pretty nicely. So for individuals, it is going up by about $300. For families, it is going up by $550. And then you still have that $1,000 catch-up if you're over the age of 55. 

So that's kind of the HSA in a nutshell. And that's that's the the typical way that most health savings accounts are actually used. But I want to give you a little bit of a tip here. When it comes to health savings accounts, health savings accounts can be used for any kind of qualified health expense. And it doesn't need to happen in the year that you actually make the contribution. So again, going back to what we just talked about, let's say for 2024, you are a family and you put in $8,300. Well, you don't have to have $8,300 of expenses. You you could pay out of pocket for them, and then let that $8,300 grow. 

So again, there are different types of health savings accounts. Some just require you to put it into like a savings account, and it'll make whatever the bank and their current interest rate is on savings accounts. But many HSAs allow you to actually invest this money. And sometimes you can get pretty aggressive with the investments. And so this is an idea - certainly not a recommendation. This is an idea for you to consider because you're getting a tax deduction upfront and all of the growth and the contribution that you made comes out tax free when you actually start taking it out for qualified medical expenses. You may want to consider getting pretty aggressive with the investments, holding the money in the HSA and then in retirement when you have to pay Medicare premiums and Medicare co-pays that you use the HSA for that purpose. 

So example. So let's say that you put in this you know, the $8,300 that we just talked about, and you put it into a pretty aggressive investment - let's say an S&P 500 mutual fund that could grow by a pretty significant margin over the years that you invest it. If you're only 30 years old, and you won't be taking money out until age 65 when you have Medicare costs and health insurance costs or health costs due to what's not covered with Medicare, you could have 35 years of tax-free growth, that as long as you take that money out for medical purposes, and as we keep saying qualified medical expenses that comes out tax-free. So your health savings account may grow to a pretty significant amount of money that you can use for health expenses in retirement. 

So I don't want to get too deep into this, because this is certainly something that not many people do. You know, again, what most people do is they make the contribution over the years as they incur medical expenses, they take withdrawals, that's the majority of people. But there are a handful of people that are using this as a retirement health savings account and aren't taking withdrawals from it along the way, and instead letting it grow over that timeframe and taking advantage of the fact that you get a tax deduction today for the withdrawal for the contributions you're making. But then anything that you take out, including any growth on that money is tax-free as long as you're taking it out for qualified medical expenses. 

So there's your tip for the day. If you want to talk about it some more feel free to reach out to our team. Definitely a different way of looking at health savings accounts, but you know, for some people, it might be a really good option for you to consider. Thanks so much for listening and hope you have a great day.

Brendan is the Managing Director for Waymark Wealth Management. He has extensive experience in comprehensive wealth management. His focus includes retirement planning, behavioral finance, investment portfolio construction, education funding, insurance & risk management, taxes, charitable giving, and estate planning. Brendan has an ability to take clients' complex visions and distill them down to simple action plans, helping them move from where they are today to where they want to be tomorrow.

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.

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The opinions voiced in this video are for general information only and are not intended to provide specific advice or recommendations for any individual.


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