How can you use HSA for your retirement?

Overview  

Despite the fact that millions of Americans have HSAs or could qualify for one in the future, few actually use their accounts to their full potential. In order to maximize their HSA, account holders should have a firm grasp on the following concepts. 

Key Points 

Maximize HSA Contributions 

Pay your healthcare bills 

Invest the fund 

Save your medical Receipts 

Withdraw money after retirement 

Leave an inheritance to your spouse 

Maximize HSA Contribution 

As you get closer to retirement age, you can make catch-up contributions to your HSA, just like you can with other tax-advantaged retirement accounts. Those who are 55 or older can put an additional $1,000 annually into their HSA, bringing the total contribution limit to $4,650 for an individual and $8,300 for a family (Tax Year 2022). 

Pay your healthcare bills 

Now that you have a source of income, you can take care of your healthcare costs without touching your Health Savings Account (HSA) money, which can instead be invested to earn interest and grow.   

Investment in the fund 

You may be able to choose from a variety of funds and securities made available by your HSA provider. If you're unhappy with your current options, you may want to look into switching to a different service. Assuming you are covered by a high-deductible health plan (HDHP), you are free to establish your own HSA in addition to any offered by your employer. 

Consider your time horizon thoroughly before making any retirement investments. Selecting a fund's level of riskiness should reflect how far away you are from retirement. Consider a target-date fund if you want your investments to be managed automatically. 

Save Your Medical Receipts 

Consider investing the money in your HSA for your future rather than using it for immediate medical costs. If you want to take advantage of tax-free HSA withdrawals in the future, you should start keeping track of your medical expenses now. 

If you have an HSA and a receipt for a medical expense, you can reimburse yourself for it at any time, even if it was years ago. 

Withdraw money after your retirement.  

You can use your HSA to pay for future medical costs or you can cash in on your accumulated medical bills for a lump sum payment after retirement. 

Withdrawals from a health savings account (HSA) can go one of three ways, depending on the account holder's age and the intended use of the funds. 

Your age	Qualified Medical Expenses		Other Expenses
Less than 65 years old	No taxes, no penalty		Taxes are applicable, 20% penalty
65 years old or older			Taxes are applicable, no penalty

Leave an inheritance to your spouse. 

If you pass away before depleting your HSA, your surviving spouse can open one in your name and continue to enjoy the tax benefits you've accrued. In this way, you'll be able to contribute to their post-retirement healthcare costs as well. An HSA can be passed on to a non-spousal heir, but that person will immediately be required to pay tax on the entire balance. 

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