The most overlooked investment account is the Health Savings Account. These accounts were created for to help cover expenses for health care. Not only can you take advantage of tax-deductible contributions and tax-deferred growth, but also get tax- free withdrawals if used for qualifying medical expenses. Retirement accounts such as 401ks and Individual Retirement Accounts, IRAs, have similar rules- however you still pay income taxes on future withdrawals. HSAs are the only investment account that enjoys those three main tax benefits.
To participate in an HSA account, you need to be enrolled in a High-Deductible Health Plan. These plans typically favor younger & healthier people who can afford higher deductibles and out-of-pocket expenses, and in turn have lower monthly premiums. Below are some other key points and financial planning strategies to be aware of:
- At age 65 you can make a withdrawal for any purpose, non-healthcare related, without penalty. You are subject to normal income-taxes.
- To further grow your HSA nest egg during your working years, you can pay out-of-pocket health care expenses from personal savings and not use your HSA account. Down the road you can retroactively take withdrawals for past expenses as there is no time limits! Save those records!!
- There are no required minimum distribution rules o RMDs, so you can grow your HAS well into your later years without forced withdrawals.
- For self-only coverage you can contribute $4,150 for 2024 tax year, for family coverage the limit for 2024 is $8,300. Those 55 and older are allowed an additional catch-up contribution of $1,000.