Why HSA’s go Hand in Hand with Obamacare and Retirement
I’ve written about Health Savings Accounts (HSA) in the past (Are You Missing Out? – 23,000 Reasons I Love My Health Savings Account (HSA)) as being one of my favorite and most important accounts in my financial plan. With the high deductible, “Bronze” option being the most affordable choice under Obamacare, HSA’s have grown in popularity. Obamacare plans range from Platinum, Gold, Silver and Bronze. The Platinum plan offers the most paid for benefits with the lowest deductible while the cheapest plan is the Bronze and it has the highest deductible. “How high” you ask? In Illinois, the Bronze plan has a $6,600 deductible for an individual and $13,200 for family.
This plan actually looks most like what insurance is by definition. It’s a transfer of risk for large, unexpected and unlikely occurrences. The exception to this would be that your annual physical exam is covered by these plans.
A HSA is simply an account that you can create separate from your insurance plan that you are eligible to create and fund if your insurance is a high deductible qualified plan.When you have a qualified high deductible account like the Bronze plan, you are eligible to contribute to an HSA. For 2015, an individual can contribute $3,350 and a couple can put away $6,650 and this limit is being increased annually.
Health Savings Accounts are special, like a SUPER IRA:
The contributions are federally income tax-deductible (no income limitation on tax deduction)
Once in the account, the growth of the money is not taxed (tax-deferred)
The money comes out tax-free if used for medical expenses including:
Doctor and hospital bills, prescriptions, dental, chiropractor, Medicare and long-term care premiums and many more expenses.
Ideally, you would pay for your medical expenses using other resources and let this account balance grow over time. While you have easy access to this account (debit card or check book) I suggest you let it grow. In fact, you can invest the funds in your HSA in an investment account. You can create a brokerage account under using the HSA money and enjoy all the tax benefits.
Link to – Future Value Calculator for HSA contributions:
If you invest $6,500 for the next 15 years and earn 1% your account balance would be about $100,000
If you invest and make 6% per year your balance would be about $150,000.
How nice would it be to have a pot of money set aside specifically for health care related costs during retirement. By the time I’m there I hope I can get new knees if needed from all the wear and tear from playing basketball, and eye surgery (assuming that’s available) so I can read without cheaters. If my wife and I are in great health, we can use it for Medicare premiums or eventually take it out (and pay income tax) and spend it on other things.