| Tue, May 26, 2015 @ 09:00 AM

How to Get Triple-Tax-Free Retirement Savings

Posted by Medicare Made Clear

retirement-savingsIt’s no secret that health care costs could take a big chunk out of your retirement income. A health savings account (HSA) could help cover some costs tax free.

HSA’s were created to help individuals save for current out-of-pocket health care costs, but they may do more than that. One advantage an HSA offers over other types of health care savings accounts, such as Flexible Spending Accounts, is that the money you don’t use in any given year stays in your HSA.

With an HSA, your money:

  • Goes in tax free
  • Grows tax free
  • Comes out tax free to use for qualified medical expenses

That’s triple-tax-free savings.

In addition, once your HSA reaches a certain threshold, you can choose to invest your money in mutual funds. Investment earnings are tax free as well, as long as they are eventually used for qualified medical expenses.

An HSA can be a savvy retirement savings strategy. It’s like an IRA for your health.

Who Can Contribute to an HSA?

You must have a qualifying high-deductible health insurance plan to be eligible for an HSA. This can be an employer plan or an individual plan. Many employers make contributions to employee HSAs as well.

You can no longer contribute to an HSA after you sign up for Medicare. However, you may use funds from an existing HSA to help pay some Medicare costs.

How Much Can You Contribute?

Individuals can contribute up to $3,350 in 2015. The limit is $6,650 if you have family coverage. People 55 or older can make an additional catch-up contribution up to $1,000 in 2015.

Contributions are pretax if made through your employer or tax deductible if you’re on your own.

What Can You Use HSA Funds For?

You can use HSA dollars for out-of-pocket medical expenses such as:

  • Deductibles
  • Copays
  • Bills not covered by insurance (such as vision and dental care)

Once you’re retired, you can also use your HSA:

  • To re­imburse yourself for money deducted from your Social Security check to pay your Medicare Part B premiums
  • To pay Medicare Part D plan premiums
  • To pay Medicare Advantage plan premiums
  • To cover a portion of long-term-care insurance premiums

You may not use HSA funds for Medicare supplement insurance plan premiums.

HSA funds withdrawn and used for non-qualified expenses will be taxed. You could owe a penalty in addition to the tax if you are under age 65 and use HSA funds for non-qualified expenses.

You may also be interested in:

Retirement in Balance – Health and Wealth

Health, Meet Wealth

For more information, explore MedicareMadeClear.com or contact the Medicare helpline 24 hours a day, seven days a week at 1-800-MEDICARE (1-800-633-4227), TTY 1-877-486-2048.

Resources:

Retirement and Medicare Basics: Watch this video to learn about your Medicare choices.

Help Paying for Medicare: Learn about assistance programs you may qualify for.

Medicare.gov: Visit the official U.S. government site for Medicare.

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