How to Save for Retirement with Your HSA
If you choose to use your HSA to save for retirement, follow these tips to ensure you’re getting the most out of your account.
Reserve Enough Cash to Cover Your Deductibles
Since HSAs are only available with high-deductible health plans, you need to make sure you have enough cash on hand to pay your higher deductibles when you need medical care. Save the money in your HSA or in a high-yield savings account.
If you choose to keep funds earmarked for deductibles in your HSA, make sure it isn’t invested in tradable securities.
During a market downturn, you might be forced to sell shares of any mutual funds or stocks you own at a loss in order to pay for medical care.
If you’re especially concerned about covering medical costs in a pinch, consider raising the amount you keep liquid to be equal to your out-of-pocket maximum.
Invest the Extra Funds
Once you have enough liquid cash to cover your deductibles, invest the rest of your HSA funds. Unfortunately, most people with HSAs—including those who report they’re saving for retirement with an HSA—do not invest in stocks, bonds or mutual funds using their account, according to the Employee Benefit Research Institute (EBRI).
Your HSA provider may provide you with a range of different funds and securities as options. If you don’t like what you see, consider moving your funds to a provider with better choices. As long as you have an HDHP, you can open an HSA outside of the one your employer provides.
As with all retirement investing, carefully consider your time horizon. The number of years standing between you and retirement will likely dictate how aggressive or conservative you choose to be in your fund selection. If you’re looking for a hands-off approach, consider a target-date fund.
Save Your Medical Receipts
If you’re using your HSA to invest for retirement, you might choose not to use the funds to pay for medical expenses now. But it’s still important to track medical expenses now because they may help you make tax-free withdrawals from your HSA later.
HSAs have no clock on medical reimbursements, meaning if you have a saved receipt, you can pay yourself back for it even years after the initial expense.
“If your child had an emergency room visit years ago, you may reimburse yourself at any time from the HSA, as long as you have the receipt,” says Paul Mitchell, CFP and partner of Precision Wealth Partners in Delaware. “You can choose to pay all medical bills out of pocket, invest the HSA funds, then reimburse later with the HSA earnings from any tax-favored growth.”
Make Catch-up Contributions
Like other tax-advantaged retirement accounts, HSAs allow catch-up contributions as you approach retirement age. With an HSA, you can invest an extra $1,000 per year if you are 55 or older,. This brings HSA contribution maxes to $4,600 for an individual and $8,200 for a family.
Consider an IRA Rollover
If you have money in a traditional IRA, you can make a one-time transfer of funds into a health savings account through a process known as a rollover. It gives some of your IRA funds the triple-tax-free benefits of an HSA, assuming you used the money for current or past health-related expenses. If you used them in any other way, you would effectively have a traditional IRA by another name.
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