Recent estimates of total retirement healthcare costs for a 65-year-old couple today are $275,000, or 59% of their total Social Security benefits. For a 45-year-old couple retiring in 20 years, that number is $635,000, or 122% of their total Social Security benefits. With accelerating healthcare costs, the current work force needs to plan wisely to meet their future medical needs.

Enter the triple-tax qualified health savings account (HSA), a unique financial vehicle that allows individuals to save and spend on health-related expenses on a tax-favored basis. First, contributions can be made to an HSA with pre-tax dollars (and is not counted towards gross income). Any contributions made to an HSA with post-tax dollars can be deducted. Second, withdrawals from an HSA are not subject to federal income tax (if used for qualifying expenses); and third, any earnings made (e.g. interest or dividends) are also tax exempt.

The portability of an HSA makes it easy to continue using the account when changing jobs, switching insurance providers, or retiring. While not a great fit for everyone, HSAs can be used as a supplemental retirement savings tool; any funds left in an HSA account at the end of the year roll over to the next year in perpetuity. HSA users can effectively shield all qualifying medical expenses from the three tax threats to which typical brokerage accounts are subject.

Are you qualified for an HSA?

To qualify for an HSA you must have a high deductible health plan (HDHP), i.e. an insurance policy with a minimum deductible of $1,350 for individuals and $2,700 for family plans. Out-of-pocket expenses for individuals and families are capped at $6,750 and $13,500 respectively.

HSA Contribution Limits

2019 HSA contribution limits are $3,500 for individuals, and $7,000 for families. Catch-up contributions (for 55+) allow for an added $1,000. While you cannot contribute to an HSA after you enroll in Medicare, people 65 and older can use HSA funds to pay for Medicare premiums. More information about HSA qualifications and limits can be found on Healthcare.gov.

Qualifying Medical Expenses

Below is a brief list of qualifying HAS medical expenses. For a full list, read the IRS publication 502.

With 2019 swiftly drawing closer, Skyline reminds you that open enrollment for all ACA healthcare plans begins on November 1^st and closes on December 15^th. Contact a Skyline advisor to learn more about HSAs.