You don't have to stop HSA contributions upon reaching age 65. You won't lose HSA eligibility until you enroll in Medicare. Just keep in mind that Medicare Part A enrollment will be six months retroactive, so you'll have to account for that issue.
Try to invest as much of your HSA money as possible while ensuring that you keep enough cash to cover your qualified medical expenses. Consider where your other retirement plans are invested as well to make sure that your HSA investments provide diversification. Avoid taking out funds from your HSA as much as possible.
Just remember, there's no yearly minimum you have to spend from your HSA and your entire HSA automatically rolls over each year. Some tax advisors even inform clients to max out their HSA contributions each year before adding to their 401(k)!
First off, most experts would recommend maxing out HSA contributions before maxing out 401(k) contributions because of the tax advantages that come with the HSA. There's no minimum age for HSA fund distributions, so when you need it to spend money on health care, it's got your back.
The main downside of an HSA is that you must have a high-deductible health insurance plan to get one.
An HSA is both a savings and investment account that can give you three tax breaks, according to Ramsey, who deemed them “a hidden gem of investing.” “In the short term, an HSA acts as a tax-advantaged emergency fund for health care expenses.
The amount of money you should have in your HSA during retirement depends on your healthcare needs and circumstances. According to the Fidelity Retiree Health Care Cost Estimate, a single person who is age 65 in 2023 should aim to have about $157,000 saved (after tax) for healthcare expenses during retirement.
Investments are subject to risk, including the possible loss of the principal invested, and are not FDIC or NCUA insured, or guaranteed by HealthEquity, Inc.
If you are age 65 or older and enrolled in the HDHP with an HSA, plan to stop HSA contributions six months before enrolling in Medicare. Be mindful that enrolling in Social Security results in automatic enrollment in Medicare Part A.
Yes, you can use a health savings account (HSA) or flexible spending account (FSA) for dental expenses.
How you use your HSA really depends on your health care needs and longer‑term goals. It's all about balance: Spend when you need to and save as much as you can to take advantage of the benefits of your HSA that can help you be ready for the future.
Can I cash out my HSA when I leave my job? Yes, you can cash out your HSA at any time. However, any funds withdrawn for costs other than qualified medical expenses will result in the IRS imposing a 20% tax penalty.
Using an HSA when you're not eligible is one of the biggest mistakes you can make, as it can lead to major financial headaches. Eligibility criteria for HSAs are strict, and using one without meeting the requirements can result in tax penalties and other complications.
Max out your contributions if you can
If you're able, consider contributing the annual maximum amount. The more you can contribute, the more you can benefit from the HSA's potential tax advantages.
Should you contribute to your HSA to get the match? It's simple: no. If you're in debt and don't have an emergency fund, then that's where all your attention (and money) needs to be going. The match can wait.
Understanding your risk tolerance and potential future medical needs will help determine how aggressively to invest your savings. For example, if you're using an HSA mainly as a retirement account, then it could make sense to opt for high-return investments.
Drawbacks of HSAs include tax penalties for nonmedical expenses before age 65, and contributions made to the HSA within six months of applying for Social Security benefits may be subject to penalties.
To summarize, when prioritizing long-term savings while enrolled in HSA-eligible healthcare plans, I would strongly suggest that the order of dollars should go as follows: Contribute enough to any workplace retirement plan to earn your maximum match. Max out your HSA (See Contribution Limits Below).
I recommend that people put off or stop investing until they are debt-free, except for their home, and have an emergency fund of three to six months of expenses in place. In some cases, depending on how much debt they have, it could take three or four years to do all this.
An HSA also allows you more flexibility because you take withdrawals now (for qualified medical expenses) and during retirement. Roth IRAs offer tax-free growth. However, the contributions are taxable. But you can take out your contributions anytime without taxes or penalties.
Once you turn 65, you can use the money in your HSA for anything you want. If you don't use it for qualified medical expenses, it counts as income when you file your taxes.