Health Savings Accounts: Now or Later

Health Savings Accounts (HSAs) are a great savings tool for those with High-Deductible Health Insurance Plans (HDHP)*. HSAs allow people to build up tax-free savings for most out-of-pocket medical expenses, whether those expenses happen now or later. Contributions are tax-deductible (or pre-tax if properly made through your employer), the money grows tax-deferred, and it can be used tax-free for qualified medical expenses.

Qualified medical expenses include: co-pays, prescription drugs, chiropractor visits, hearing aids, vision care , dental care and even a portion of long-term care insurance premiums. (For more information on what is covered, see IRS Publication 502 at

As health care plans change, HSAs are becoming more popular and account balances are starting to grow. According to the July 2015 Report from Employee Benefit Research Institute (EBRI), about 17 million people were enrolled in HSA-eligible insurance plans, with an estimated 13.8 million people opening Health Savings Accounts. The average balance at the end of 2014 was $1,933, with the average balance of $655 for owners under age 25 and $5,016 for owners over age 65.

As we help clients design their retirement plans, a concern we hear too often is the uncertainty of future health care costs. Maybe you feel this way as well! So what if we challenge your thinking a little? What if instead of using your HSA for current medical expenses, you save it for later? And what if you maxed out your annual contributions before age 65? By using these strategies, you could not only build an emergency medical fund for retirement, but give yourself a tax deduction as well!

Funding your HSA for future medical expenses might be a win-win for you, giving you a savings tool specifically built for medical expenses. Expenses in retirement like Medicare Part B and Part D are qualified medical expenses, as is qualified long-term care. Saving for these expenses in advance by using an HSA can help to stretch your retirement income further.

Your annual contribution limit is based on your type of plan (self-only or family coverage) as well as your age. Individuals age 55 or older can add an additional $1,000 per year. Please keep in mind, once you enroll in Medicare, you can no longer contribute to an HSA. You can make contributions to your HSA for 2016 until April 18, 2017.

Health Savings By the Numbers:20162017
HSA Contribution Limit
(Employer + Employee)
Self-only: $3,350
Family: $6,750
Self-only: $3,400
Family: $6,750
HSA Catch-Up Contributions
(Age 55 or older)
HDHP Minimum DeductiblesSelf-only: $1,300
Family: $2,600
Self-only: $1,300
Family: $2,600
HDHP Maximum Out-of-pocket AmountsSelf-only: $6,550
Family: $13,100
Self-only: $6,550
Family: $13,100

Is now the time to add this tool to your retirement plan? If you have questions, please don’t hesitate to contact your advisor.
* Not all High-Deductible Health Insurance Plans are HSA-Eligible. Please review your plan specifics.

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