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Are You Buried In Medical Bills?


Financial Rules of Thumb

May 30, 2021

Are you Buried in Medical Bills?

One little Known Rule Could Help...

Worried about healthcare costs in retirement? Have a big medical expense and don't know how you will pay? Maybe you were laid off but still need to pay for essential prescription drugs? You might already have the cash you need but did not know you could access: Your IRA!

IRA's can be an incredibly powerful tool to save for retirement offering tax-deductible contributions and tax-deferred growth of your assets. However, you must pay taxes once you withdraw the funds, there is a 10% penalty for early withdrawals before 59 ½, and you must begin taking distributions at 72 whether you need the money or not. HSA accounts offered through a high deductible healthcare plan offer these same benefits, but there is no penalty on withdrawals used for qualified medical expenses, you will never be required to withdraw the funds if you do not need them, and the funds can stay invested once you meet your provider's minimum (typically around $2,000.) They are a true triple threat with tax deductible contributions, tax deferred growth, and tax-free withdrawals for qualified medical expenses.

If you are worried about healthcare costs in retirement, or maybe in a bind with medical bills to pay, you might consider accessing your retirement funds via a qualified HSA funding distribution. Otherwise known as an IRA to HSA rollover, the IRS allows you to make a one-time rollover of funds from your IRA to an eligible HSA account tax-free. The maximum you're allowed to transfer is the same as your HSA contribution limit for the year, minus any contributions you have already made.

For 2021, the limits are:

  • $3,600 for individuals, with an additional $1,000 catch-up contribution if you are 55 or older.
  • $7,200 for family coverage, with the same $1,000 catch-up contribution.

With the average IRA account balance reaching $130,000 in 2021, it may make sense to convert some of your funds to help ease a financial burden today. While it is almost always better to fund an HSA with new money since you get a tax deduction on your contribution, your IRA could act as an immediate get out of debt card if any you have unpaid medical bills and money is tight.

It is important to note that you are required to remain a participant in your HDHP for one year following the rollover to avoid taxes and a potential 10% penalty. If you are considering this little-known move, make sure you do your research and consult your tax and financial advisor beforehand so that you understand the impact this could have on your retirement. After all, that's why you contributed to your IRA in the first place.


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About the author

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Billy Daniels

Vice President, Private CFO®

A native of Mobile, AL, Billy moved to Atlanta shortly after graduating from The University of Alabama in 2013. Billy joined the oXYGen Financial team as a Vice President in 2019 with 4 years of previous experience in the financial services industry. In his spare time, Billy is an avid golfer, watches as many Braves games as he can, and pulls for his Crimson Tide on Saturdays in the Fall. Billy currently lives in Peachtree Corners, GA with his wife Molly, daughter Margot and their dog Beau.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.
Background and qualification information is available at FINRA's BrokerCheck website.

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