Health care is one of life’s biggest overall expenses, and it’s not always one you choose. As you get older, your medical expenses will likely increase.
While you may not be able to escape co-pays and medical bills entirely, you can plan ahead and save money for these things in a unique way that benefits you both now and during retirement!
Health Savings Accounts are a useful financial tool that you should start using this year (and that you can keep using as a retirement strategy). Here’s what an HSA is and how it works:
A Health Savings Account (or HSA) is a special, interest-earning savings account where you can put money aside specifically for healthcare costs. You are only eligible if you have a high-deductible insurance plan, so ask your insurer if you qualify first.
You may have also heard of a Flexible Spending Account, or an FSA. An FSA is only offered through your employer, and you must use the money that you put into it that same year, or you lose it.
Unlike an FSA, you can set up an HSA without your employer, and you get to keep your money year after year, even if you change jobs. This money can build up over time and help you cover medical costs in your retirement years.
With both an HSA and an FSA, the benefit is that the money you put into those accounts is not taxed, ever. The money you put into your HSA is considered “pre-tax,” so it can lower your taxable income. Then, any interest you earn on that savings account is also tax-free, which is another great bonus. If you’re lucky, your employer may contribute to your HSA, too. (Inquire about this with your human resources department.)
You can use money from your HSA on a wide variety of things, from copays to medications, glasses and contacts, braces and more.
A lot of companies offer HSAs, including big brokerages and small financial institutions. You’ll need to do some research on which HSA will offer you the best interest rate on your savings. You’ll also want to be aware that some HSAs have monthly maintenance fees or have other rules.
In your retirement, healthcare could be a major expense. Saving for it now, pre-tax, and using it as needed now and in the years to come, can help.
If you need any more financial advice, we’re here for you! CommonWealth One’s financial professionals can help you navigate costs and expenses, savings and strategies no matter what stage of life you’re in.
