When it comes to retirement accounts, everyone wants to have the ultimate Swiss Army Knife. Wouldn’t it be great to have an investment that you can put away pre-tax, grows tax-deferred, and then ultimately comes out tax-free? Well, that strategy actually exists today and it is called a Health Savings Account. Typically Health Savings Accounts are tied to High Deductible Health Plans and allow you to put away money in the triple tax-advantaged strategy. But… how in the world does a health related account factor into your retirement?
What I have noticed as of late is that more people are considering retirement before the age of 65. In many cases, the ‘work optional’ strategy starts to materialize for many couples in their late 50’s or early 60’s. The challenge of making an early retirement decision isn’t always about how much money you have saved for retirement, but dealing with healthcare related issues before you turn the age of 65 and qualify for Medicare can be a significant planning challenge. Even if you can COBRA your health insurance for 18 months after you separate from service from your employer, you may still be left with a gaping hole in your financial plan in the event that you have health matters that chew into your retirement capital.
For 2017, an individual can save $3,400 a year pre-tax and a family can save $6,750 pre-tax. If you are the age of 55 or older here in 2017, than you can save an additional $1,000 to your HSA account. You can open an HSA account through a bank, an insurance company, or another IRS approved trustee. Generally, if your balance in the HSA is more than $2,000, most trustees will have options to invest your HSA in a very similar fashion to how you can invest your 401k plan. Remember, because HSA plans are NOT use or lose, these are very portable investment accounts that come with you no matter where your place of employment is located. Monies will continue to grow tax-deferred until you use them at which point they will come out tax-free.
One side note for people considering an HSA. If you are strapped for cash, you have a one-time opportunity in one tax year to roll money from an IRA into an HSA. The dollars from the IRA must still stay within the annual contribution limits, but if you have plenty saved in IRA accounts this could be a smart alternative strategy.
If you are struggling with how to handle these as you plan for retirement, give me a call or shoot me an e-mail at [email protected] and we can help.