By Skyline On Thursday, October 25 th, 2018 · In

FIELD NOTE: OCTOBER 2018

THE TRIPLE TAX QUALIFIED ACCOUNT

It’s no secret that healthcare is steadily out-pacing inflation. Out-of-pocket individual health expenses have risen from $119 in 1970 ($590 in 2016 dollars) to $1,093 in 2016.

Out-of-Pocket National Health Expenditures per Capita (1970-2016)

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Total Health Expenditures per Capita (1970-2016)

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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.

Cost of Healthcare in Retirement

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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.

Lead-based paint removal

Hearing aids

Insurance premiums

Prescriptions

Chiropractors

Acupuncture

Addiction treatment

Medical related legal fees

Laboratory fees

Birth control

Therapy or counseling

Service animals

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

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