Plan ahead for medical bills and boost retirement savings
Most people know that health savings accounts (HSAs) are a source of tax-free money to pay out-of-pocket medical expenses. But if you plan carefully, HSAs can also be a valuable source of retirement savings, providing a triple tax benefit that is even better than a 401(k).
Medical care is a big part of retirement spending. Fidelity Investments estimates that a 65-year-old couple will need about $285,000 to cover health care expenses in retirement — including Medicare premiums, copayments, deductibles and prescription drug costs. If you start planning in advance, the HSA can be a great source of tax-free money for those expenses and more. Don’t pass up the triple tax benefits of an HSA.
Make the most of HSA savings opportunities
You can’t make new contributions to a health savings account after you enroll in Medicare. But you can contribute to the account before then as long as you have an HSA-eligible health insurance policy — whether through your employer or on your own. In 2020, the policy must have a deductible of at least $1,400 for self-only coverage or $2,800 for family coverage. You can contribute up to $3,550 in 2020 if you have self-only health insurance coverage or $7,100 for family coverage, plus an extra $1,000 if you’re 55 or older. Plus, many employers contribute to employees’ accounts — an average of $773 for Fidelity’s employer plans.
The contribution deadline for 2019 was extended this year — if you had an eligible health insurance policy last year, you still have until July 15 to make a federal tax-deductible contribution for 2019. If you already filed your income tax return, you can file an amended return to claim the tax deduction and get a refund from the IRS.
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References:
Lankford, Kim, AARP 2020, accessed 29 December 2020, < https://www.aarp.org/money/taxes/info-2020/hsa-tax-advantages.html >
