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HSA and retirement

Health savings accounts (HSAs) come with three powerful tax benefits:
(1) the dollars you contribute are deducted from your income
(2) earnings compound tax-free inside the HSA
(3) withdrawals are also untaxed if the money is spent on qualified health-care expenses

Depending on the state, HSA contributions and earnings may or may not be subject to state taxes.

To be eligible to establish or contribute to an HSA in 2015, individuals must be enrolled in a high-deductible health plan (deductibles of at least $1,300 for individual coverage, $2,600 for family coverage).1 A deductible is the amount the insured must pay before insurance payments kick in.

HSA contributions are typically made through payroll deductions, but in most cases they can also be made directly to the HSA provider. Some employers make an annual contribution to employees’ HSAs. The maximum combined contribution limit is $3,350 for individuals or $6,650 for families in 2015. An additional $1,000 can be contributed starting in the year in which a participant turns 55.2

The primary purpose of an HSA is for workers to set aside pre-tax income to pay unreimbursed medical expenses. But an HSA could also play a role in your longer-term retirement strategy. For instance, research suggests that the average 65-year-old couple could spend as much as $220,000 on health-care costs in retirement.Any accumulated HSA funds could be used for these medical expenses.

Although HSA funds cannot be used to pay regular health plan premiums, they can be used for Medicare premiums and long-term-care expenses. You can no longer contribute to an HSA after you sign up for Medicare, but account funds are still available to pay health expenses — or for any other purpose after you reach age 65. When HSA withdrawals are spent on anything other than qualified medical expenses, they are taxed as ordinary income (but don’t incur the 20% penalty that applies to taxpayers under age 65).

1–2) Internal Revenue Service, 2014
3) CBS News, April 16, 2014

Freeman Owen, Jr - Host of "Safe Money Talk" on CBS Radio The Big Talker 1580AM Know what options you have available for your retirement and how to keep your money safe during your golden years.  Meet with me for a FREE retirement strategy consultation, contact my office at 1-866-471-7233 | MD, VA & DC.