A health savings account, or HSA, is a tax-advantaged account that people can use to cover their out-of-pocket medical costs. Compared to regular savings accounts, HSAs turbocharge your ability to cover medical bills, whether you’re already retired or still earning a steady paycheck.

But unlocking the full potential of these accounts takes careful planning and strategy.

Simply having an HSA is not enough – following best practices around

  • Contributions
  • Investments
  • And payment methods

is key to maximizing the tax advantages and long-term value these accounts offer.

At Brogan Financial, we aim to educate and help you get on the fast track to financial solvency.

In this article, we’ll talk about the ins and outs of health savings accounts and help you understand how to utilize them to their fullest potential.

Are You Eligible for an HSA?

To be eligible for an HSA, you must be enrolled in a high-deductible health plan (HDHP), which has a higher annual deductible than traditional insurance plans. For 2024, the minimum annual deductible is $1,600 for individual coverage and $3,200 for families.

Eligible individuals can contribute funds to their HSA up to the yearly limit set by the IRS. For 2024, the contribution limits are $4,150 for individuals and $8,300 for families.

People over 55 years of age can also make an additional $1000 catchup contribution.

HSA funds roll over each year, so you don’t have to spend the entire balance annually. The money remains in the account until it is used or distributed. Contributions are tax-deductible, and interest/investment earnings are tax-free, so it has the potential of providing both the deductibility advantages of an IRA with the tax-free distributions of a Roth.

How to Pay with an HSA?

Health Savings Account funds can be used for a wide range of medical bills, including deductibles, copays, prescriptions, dental and vision care, certain medical equipment and supplies, and some health insurance premiums.

The IRS provides a full list of qualified expenses in Publication 502.

As for the payment method, there are a few different ways to handle it:

  • HSA Debit Card: Account providers issue debit cards that can be swiped at pharmacies, doctors’ offices, hospitals, and other healthcare facilities to directly pay with HSA money.
  • HSA Checks: Checks linked to the HSA account allow account holders to write paper checks to pay for medical services and products.
  • Reimbursement: You can also pay out-of-pocket initially and keep receipts. Later, you can withdraw HSA funds to reimburse yourself for those qualified expenses.

Using the debit card or checks allows HSA funds to be used for direct payments seamlessly. Reimbursement provides more flexibility to pay, allowing you to claim those payments later on.

As long as HSA funds are used for qualified medical expenses as defined by the IRS, account holders receive the full tax advantages and benefits of these accounts.

Benefits of Using an HSA

There are several key benefits to using an HSA to pay for healthcare costs:

1.   Tax Advantage:

HSA provides a triple tax advantage to account holders. How?

  •  Contributions made to your account are tax-deductible
  •  Earnings that come from your account are tax-free
  •  Withdrawals made for qualified expenses are tax-free

So, you’ll be saving your tax money in three different ways! This is one of the best ways to tackle healthcare costs in retirement.

2.   Build Savings:

Since unused HSA balance rolls over from one year to another, you can accumulate funds in your account. That fund can be used for qualified long-term expenses in the future – a great strategy for wealth accumulation.

3.   Flexible Payment Options

The option to pay with a debit card, check, or even reimburse yourself for previously eligible costs brings a lot of flexibility for HSA account holders. You have full control over when and how to use your HSA money.

4.   Individual Ownership:

Your Health Savings Account is your own. Even if you change employers or your health insurance plans, your HSA account will stay with you. Even if your HSA is partially funded by the employer, you have sole ownership of the account.

Consult with a Professional Advisor

While Health Savings Accounts offer great advantages, the rules around eligibility, contribution limits, qualified expenses, and tax treatment can be difficult to understand. A professional financial advisor can provide guidance on maximizing the tax benefits and utilizing your HSA optimally.

Work with Us

We’ve covered the key benefits of using a Health Savings Account to save for healthcare expenses in retirement – from triple tax savings to accumulating funds for future medical bills.

As we discussed, an HSA can be a powerful option depending on your eligibility and overall financial situation.

However, you’ll need a tailored strategy to get the most out of it. That’s why the best next step is to have an open discussion with us to evaluate your specific circumstances.

Everyone’s retirement outlook is unique – with our complimentary consultation session, let us help you put together an informed game plan to handle medical expenses down the road.

Or you might want to tune into “More Living with Jim Brogan” where we discuss everything related to securing your finances and more! You can join us at 98.7 FM WOKI throughout East Tennessee every Saturday morning from 9am to 10am.