HSAs: Part of your financial plan
Your HSA can be used as part of your broader financial planning to create a savings nest.
HSAs: Part of your financial plan
If you are like most people, you may think about your health savings account (HSA) solely as a way to pay for current-year qualified medical expenses, such as trips to the doctor or prescriptions. Did you also know it can also be used as a savings tool? Read more below on the benefits of an HSA and how it can be used as part of your broader financial planning for the future.
Consider contributing the max allowed
The more you contribute to your HSA today, the more you have for retirement in the future. Each year the IRS sets limits on how much you can contribute to your HSA. Know the limits that apply to you and consider contributing to the maximum allowed which can help your savings grow! Below are the IRS HSA contribution limits:
- $3,500 for individual coverage in 2019; $3,550 in 2020
- $7,000 for family coverage in 2019; $7,100 in 2020
- $1,000 additional catch-up contribution for age 55 and over
Please note: It is your responsibility to monitor your contributions to ensure they do not exceed the annual contribution limit per IRS regulations.
One of the easiest way to fund your HSA is by having an amount deducted regularly from your paycheck, also referred to as payroll deduction contribution. If you deposit money through a payroll deduction you’ll also save in payroll taxes, also known as FICA.You can sign up for automatic payroll deductions through State of Arizona.
You can also sign in into your account, either online or on the Optum Bank app, and make a one-time deposit or recurring deposits from another bank account.
Another option is to mail a direct contribution check to Optum Bank with a contribution/deposit form. You can find and fill out a "Contribution/Deposit Form" under "Statements & Docs" after signing into your account. It can take up to three business days for the deposit to be posted to your account, although some exceptions may apply.
Comparing accounts
Unlike other financial accounts, an HSA is one of the only savings vehicles that allows you to put money in tax-free, grow your savings tax-free (interest and investment earnings are not taxed), and take the money out income tax-free for future qualified medical expenses if needed.
Investing with your HSA
Once your HSA reaches the $1,000 investment threshold, you may choose to invest a portion of your HSA dollars in mutual funds. You can invest any balance over $1,000, in $100 increments.
Any earnings such as interest or dividends are income tax-free. This gives you the potential to grow your HSA savings even more.
Planning for retirement: How much will you need?
Knowing how much money you will need in retirement can be confusing. Luckily, Optum Bank has tools to help. You can get a personalized estimate of how much you may need to save for medical expenses in retirement by taking the health savings checkup tool.
Using your HSA during retirement
The benefits of an HSA don’t stop when you retire. While you are no longer allowed to contribute to your HSA after enrolling in Medicare you can still use your HSA funds income tax-free to pay for qualified medical expenses. You can also use your HSA to pay for Medicare premiums and qualified out-of-pocket expenses including deductibles, copays and coinsurance for:
- Part A (hospital and inpatient care)
- Part B (doctor and outpatient care)
- Part D (prescription drugs)
As an additional benefit, once you turn 65, you can withdraw the money from your HSA for nonqualified expenses without a penalty. You will just be required to pay ordinary income tax on that amount. Include your HSA as part of your financial planning strategy. Take advantage of both the short- and long-term tax benefits of an HSA.
Withdrawing funds during retirement
You can use the money in your HSA to pay for qualified medical expenses at any time. Once you turn 65, however, you can withdraw the money from your HSA for nonqualified expenses without a penalty. You will just be required to pay ordinary income tax on that amount.
