HSAs: Banana Split with Cherry on Top of Savings Vehicles - No Kidding!
These savings vehicles are not given near enough attention by employees. In retirement, it can serve as asubstantialsavings account tappedtax freefor health care expenses. How?
- Age 45 to 55: Family maxes out their contributions to their HSA (currently $6,750/year)
- Age 55 to 65: They contribute an additional $1,000 catchup or $7,750/year
- Leave account untouched allowing it to grow and compound year to year
- Pay for out of pocket health care expenses via their regular income during those 20 years
- At age 65, they could have accumulated $185,133 (earning 3%/year). Distributions are now:
- tax free for qualifying health care expenses or
- taxable (no penalties) for any expenses they desire after age 65
These savings vehicles require your participation in a high deductible health care plan. Some features:
- Pre-tax contributionsvia payroll
- Tax deferred compoundingof earnings and contributions
- Investment optionsoften include money markets and mutual funds
- Roll year to yearand stay with you not your employer - no "use it or lose it"
Like I said, a banana split with the cherry on top!