Health & Well-Being in Retirement
Aug 20, 2019

7 Things to Know About HSAs in Retirement

As the national conversation around healthcare continues, we hear a lot about Health Savings Accounts (HSAs). Though they can be a valuable tool for managing the costs of care, these accounts can come with a lot of questions, especially for retirees. These are important questions to get answers to, especially as we get older and our health becomes something we focus on more closely. There’s a lot to know about HSAs, so we’ve pulled together seven need-to-know bits of information to answer some pressing questions we find retirees asking – especially those on high deductible plans. 7 Key Things to Know About HSAs:    
  • Contributions – As long as you’re enrolled in a high deductible plan and are NOT enrolled in Medicare, you are eligible to contribute to an HSA. You can make contributions to your HSA for 2019 up until April 15, 2020.  If you are retired or have set up your HSA outside of your employer, you can claim a tax deduction on Form 1040 for your contribution even if you do no itemize your deductions.  With rare exception, the IRS allows for one qualified HSA funding contribution during your lifetime through a distribution from your traditional Individual Retirement Account (IRA) or Roth IRA
  • Distribution – distributions made from an HSA to pay for Qualified Medical Expenses (QME) are not taxable to the HSA account owner.  Once you reach age 65 or are disabled, you can withdraw funds to pay for non-medical expenses, but your distribution will be taxed as income, similar to an IRA. If you make any withdrawals for non-medical expenses prior to age 65, you’ll get hit with a 20% penalty and income tax. 
  • Some HSA plans permit investing in bond and stock funds.
  • HSAs are trusteed like IRAs - a qualified trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of IRAs.
  • The balance in the HSA account carries forward from year to year and is never subject to “use it or lose it”.
  • Long term care (LTC) insurance can be treated as a QME but distributions for LTC insurance are subject to limits based on age and are adjusted annually.
  • Be sure to choose a beneficiary for your HSA in the event of your untimely death.  Unlimited deductions are given between spouses through the unlimited marital deduction.  If your spouse is not the beneficiary upon death of your HSA account, the account immediately stops being an HSA and the fair market value of the HSA becomes taxable to the beneficiary in the year in which you die.  If your estate is the beneficiary, the value is included on your final income tax return.
Funding Your HSA There are a number of issues to consider when funding your HSA.  With the increasing costs of healthcare, taking advantage of using pre-tax monies for your out of pocket medical expenses is worth its weight in gold. From a 30k foot view an HSA's primary role is to serve as a savings account to help offset the cost of high deductible health plans where you can contribute pre-tax dollars and the money can grow tax free and be used tax free so long as it is used for its intended purposes – qualified medical expenses (QME). Even with these facts laid out for you, odds are you have more questions about HSAs or healthcare in general. You’re not alone. Millions of retirees across the US have pressing questions about how they’ll stay healthy and manage healthcare costs as they get older. Many of them bring in an expert to help lead the way, including those at Baird Retirement Management. Our team is here to help you retire with confidence. Let’s start the conversation.  

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