retirement |
The Importance of Health Savings Accounts for Retirement Planning in the United States. Getty Images
–
The number of health savings accounts (HSAs) is exploding in the United States, but most account holders fail to take full advantage of the retirement planning power of HSAs. There were over 30 million HSAs holding around $ 82.2 billion (€ 70.3 billion) at the end of 2020, according to an estimate from Devenir, a company that offers investment services. to health accounts.
It is possible to contribute to an HSA when its medical insurance is a high deductibility plan that qualifies for an HSA. Not all high deductible plans qualify for the HSA. This involves checking with your insurer or employer that yours is eligible. When an American decides to open an HSA, anyone can contribute to it, as long as the total contributions do not exceed the annual limit. For example, employers often pay contributions.
The maximum contribution to the HSA in 2021 is $ 3,600 (€ 3,000) for a person with an individual medical plan and $ 7,200 (€ 6,200) for a person with a family plan. An additional contribution of $ 1,000 (850 euros) is allowed for people aged 55 and over. For Americans, it is not possible to contribute once they are enrolled in any part of Medicare.
Contributions made by an individual to an HSA account are deductible from gross income, and contributions made by an employer to the employee’s account are excluded from gross income. In addition, the account can be invested, and the earnings are tax exempt. Distributions from the account are tax exempt when used to pay qualifying medical expenses. These expenses are those that would be deductible as medical expenses itemized on a tax return and which are not reimbursed by insurance or another source.
These three tax advantages taken together are unique. Unlike traditional 401 (k) and IRA plans, it’s not just about deferring tax with an HSA. Unlike a Roth IRA, tax is not paid now to avoid it later. Money put into an HSA is never taxed as long as the distributions are used to pay for eligible medical expenses. In addition, HSAs are not subject to mandatory minimum distributions while still alive. The spouse of an HSA account holder can inherit it and enjoy the same benefits.
Most people use it during their working years to pay for medical bills that are not covered by insurance. But a better strategy is to fully fund the HSA during years of professional activity and pay for ongoing medical expenses from sources other than the HSA, where possible. This should allow the HSA balance to accumulate for use during retirement.
Most HSAs are invested for safety and earn today’s low interest rates. But many HSAs can be linked to brokerage accounts. They can be invested like the rest of his retirement portfolio and get the same returns. Once you retire, it’s time to start withdrawing money from your HSA. Of course, it is possible to use this account to pay for eligible medical expenses during retirement. These can be insurance premiums, including Medicare premiums. They also include expenses that are not generally covered by Medicare, such as dental and optical services and hearing aids. Expenses do not need to be paid directly by the HSA. It is possible to be reimbursed after paying the expenses. It will then be sufficient to keep the receipts and proof of payment in case the IRS checks or the HSA custodian asks questions.
These HSA distributions are tax exempt as they are used to pay for eligible medical expenses. They will also not be included in adjusted adjusted gross income when calculating the surtax on Medicare premiums, the amount of Social Security benefits to be imposed, or any other stealth taxes. But an HSA can be used more effectively, with the goal of managing your tax bracket during retirement and reducing income taxes for life.
A key rule about HSAs is that there is no deadline for receiving reimbursement for medical expenses. In other words, a distribution does not have to be used to pay for routine medical expenses to be tax exempt. It is quite possible to accumulate receipts for eligible medical expenses paid by sources other than the HSA and get reimbursed by the HSA when needed, later.
If a retiree needs money at a particular time, they don’t have to take it from taxable sources such as a traditional IRA or by selling assets in a taxable account to realize capital gains. Instead, he can take a tax-free reimbursement from the HSA for unreimbursed qualified medical expenses he has paid in the past. This strategy allows him to obtain additional liquidity without increasing his tax bill for the year. It is particularly beneficial in the year when their income is already near the upper limit of their tax bracket or if the person wishes to avoid increasing the surtax on Medicare premiums or the amount of Social Security benefits that are taxed.
Some people do not maximize their contributions to an HSA because they believe their medical expenses will never be high enough to deplete the account balance and fear that they have limited access to the money. There is no need to worry. Distributions from the HSA can be used to pay for non-medical expenses. When distributions from an HSA are used to pay for expenses other than qualifying medical expenses, the distribution is included in gross income to be taxed.
An additional 20% penalty applies for those under 65 who wish to make a distribution for non-medical expenses. But from age 65, the distribution of an HSA to pay for non-medical expenses is taxed in the same way as the distribution of a traditional IRA.
An HSA can also be inherited, passing tax benefits on to a spouse or other beneficiaries.
Anyone who is eligible for an HSA must make the maximum contribution to the account. It is best to fully fund an HSA before contributing to a 401 (k) or IRA and investing the HSA in the same way as the rest of your retirement portfolio. This strategy will make it possible to maximize the lifespan of his retirement savings.
Article translated from Forbes US – Author: Bob Carlson
<<< À lire également : Comment réussir sa retraite avec épanouissement et divertissement ? >>>
–
