It’s no secret that healthcare costs are on the rise. In fact, a recent study by Fidelity showed that the average couple will spend over $275,000 on healthcare costs in retirement! This is a huge expense, and it’s one that can be difficult to budget for. However, like with most pieces of your financial puzzle, a bit of careful and thoughtful planning can go a long way. And when it comes to healthcare expenses, your Health Savings Account (HSA) can be a big part of that plan. Here we will discuss how you can use your HSA to help achieve your financial goals.
Back to the Basics
A Health Savings Account is a special savings account that allows you to set aside money for healthcare expenses, tax-free. That means that any money you contribute to your HSA can be used to pay for qualifying healthcare costs, and you won’t have to pay any taxes on it. Additionally, the money in your HSA can grow tax-deferred, similar to a traditional IRA. And, unlike a Flexible Spending Account (FSA), the money in your HSA stays with you from year to year—if you don’t use it all in one year, it stays there and continues to grow. That makes an HSA a great tool for long-term savings!
The HSA and Your Financial Success
So, how specifically can you use it to help achieve your financial goals. One of the best ways to use your HSA is to save for retirement. Because the money in your HSA can grow tax-deferred, it can be a great way to supplement your other retirement savings. For example, let’s say you contribute $500 to your HSA each year and that it grows at a rate of five percent. After 20 years, you would have nearly $14,000 in your account! And, because the money is tax-free, you could use it to pay for qualified healthcare expenses in retirement. This includes things like Medicare premiums, out-of-pocket costs, and long-term care insurance premiums.
Another great way to use your HSA is to pay for current healthcare expenses. This can be a great way to save money on taxes, as you won’t have to pay taxes on the money you withdraw from your HSA to pay for qualified healthcare expenses. Additionally, you can let the money in your account continue to grow tax-deferred. This is a great way to get a “double dip” on your savings – you save on taxes now, and you get the benefit of tax-deferred growth.
There are a few things to keep in mind when using your HSA to pay for current healthcare expenses, though. First, you’ll need to make sure that the expenses you’re paying for are qualified medical expenses. This includes things like doctor’s visits, prescription drugs, and dental care. Additionally, you’ll need to keep track of your expenses, as you’ll need to submit documentation to your HSA provider when you request a withdrawal. And finally, remember that you can only withdraw as much money as you have in your account – so be sure to plan ahead!
The bottom line is this: Your HSA can be a powerful tool to help you achieve financial success. Whether you’re looking to save for retirement or pay for current healthcare costs, your HSA can help you reach your full potential. So be sure to take advantage of it!