Is the HSA the best retirement account?!
You’re most likely underutilizing the best retirement account out there — The Health Savings Account. How does this sound for advantages:
- The only tax-perfect account (AKA triple-tax advantaged)
- Carry medical expenses overtime and reimburse later in life
- Build medical equity
- Don’t need earned income to contribute
- Special retirement account treatment
It’s the only “tax-perfect” account. Every contribution that is used for qualified medical expenses escapes payroll tax (2.9%), capital gain tax, and income tax! (AKA triple-tax advantaged)
There is no reimbursement deadline for qualified medical expenses. Meaning any medical bill you pay out-of-pocket while you have an HSA can be reimbursed later in the future at any time! If you rack up $20k in medical bills from now until retirement, you can then take reimbursement from your HSA without any tax ramifications — distributions from your HSA are a REIMBURSEMENT and NOT income!
Why is that important? “Out-of-pocket medical costs for a couple retiring at age 65 in 2018 are projected at $280,000 in retirement.” Which “doesn’t include nursing-home or long-term care costs, which can easily drive up the number by $100k or more for every year in those facilities.” Wonder what those costs are going to be when YOU retire. Probably not lower…
With that much expected medical care cost in the future, we need to be building medical equity — meaning assets specifically for future medical expenses.*
You need earned income to contribute to retirement accounts (IRA and Roth IRA). You can fund an HSA with “investment income, rental income, gifts, savings, liquidated investments”, and other proceeds.
HSA contributions are not limited like the maximums for other accounts. For example, you can only put $19,500 in your 401(k) or $6k in your Roth IRA, but those don’t affect your HSA contributions. Also, they don’t have Required Minimum Distributions and are not included in provisional income in retirement. That’s important for Social Security.
For 2021, you can contribute $3.6k if you’re filing single and $7.2k for a family; this includes your AND your employer’s contribution.
Yes, I know…it’s weird thinking about your 60’s and 70’s. But with a few automated tweaks, you can start making sure you’re taking advantage of one of the best retirement accounts out there!
*Only reason not to be doing this is if we have a future one payer healthcare system, and, welp, we clearly don’t like changing anything in this country.**
**Not trying to be political here. That’s more about policy changes, which are obviously political. But, I don’t know man, we are going to pay for it one way or another…
Quoted sections are from HSAs The Tax-Perfect Retirement Account by William G. Stuart
