Part of any comprehensive retirement plan should be an evaluation of potential risks to your retirement success. One of the largest risks is the ever increasing cost of healthcare. Additionally, it is impossible to predict your personal future health and thus your healthcare usage. For this reason, it is important to share this risk with an insurance provider. For healthy individuals, a high deductable health plan coupled with a health savings account will frequently be the most cost effective way to protect against this risk to your retirement savings.
Health savings accounts (HSAs) are part of the move toward a more consumer-driven health care structure. The idea is that making the consumer more connected to the payment for service will drive them to seek less costly treatment options, thus resulting in lower cost. An HSA is a savings vehicle that can be paired with a high deductible health plan to cover routine medical expenses.
To open or contribute to an HSA you must meet certain eligibility requirements. Specifically:
- You must be covered by a qualified high deductible health plan (HDHP) on the first day of the month
- Single Coverage Minimum annual deductible / Maximum annual out-of-pocket: $1,250 / $6,250
- Family Coverage Minimum annual deductible / Maximum annual out-of-pocket: $2,500 / $12,500
- You cannot be covered by any other health plan that is not a qualified high deductible health plan, including a spouse’s health insurance
- You cannot be covered by a spouse’s Medical FSA
- You cannot be enrolled in Medicare Part A or Part B
- You cannot be covered by TriCare
- To make contributions you cannot have accessed your VA medical benefits in the past 90 days
- You may not be claimed as dependent on another person’s tax return
HSA Contributions are based on your insurance coverage and age. The 2013 tax year limits are:
- Single Coverage: $3,250
- Family Coverage (2 or more people on your policy): $6,450
- Catch up Contribution: If you are age 55 or older at any time during the tax year, you may contribute an additional $1,000 to the numbers above.
The benefits of investing in a Health Savings Account have become apparent over time. More and more people are moving towards HSA plans for the advantages they offer account holders, including:
- Tax Deductible Contributions – Reduce your income today by the amount of any contributions
- No dividend, interest or capital gain tax – Interest and other earnings on Health Savings Accounts are tax-free
- Withdrawals for qualified medical expenses are tax-free
- Full Portability – If you change insurance companies you can keep your current HSA or move your HSA to another provider at any time.
- Continue to use your HSA dollars tax-free, even if you are no longer covered by a high deductible health insurance plan.
- No Year-End “use it-or lose it” – Health Savings Accounts continue to grow year to year.
- May include investment options for increased growth potential
Your options for opening an HSA fall into three broad categories: a local bank, a bank affiliated with your health insurance provider, and an online based provider. Regardless of the option, they will likely all send you a debit card to use for healthcare expenses, and provide you with end of year tax reporting. Here are some pros and cons on each of these three options.
– All of the Springfield based banks I looked at have HSA accounts available. The largest benefit to using one of these entities is convenience. You can easily fund the account from your checking or savings account at the same institution and also have a local in-person resource for questions. Local banks may charge more fees for these accounts including setup fees ($25 – $50) and monthly fees ($3 – $7).
Insurance company referral
– Undoubtedly the health insurance provider you select for your HDHP will have an in-house HSA option. This will likely be the easiest option administratively since the health insurance provider has an interest in the HSA working seamlessly with your health policy. Potential drawbacks would be a possible loss of portability. If you change insurers you may also be required to change HSA providers. There will also be one-time and monthly fees charged.
Online based provider
– A third option would be to utilize an online bank for the account. This will likely be the most cost effective route. However, interaction with the account may not be as convenient or as personal and may offer poor customer service.
How you rank things like cost, convenience, ease of setup, and customer service, will help determine which of these options are best for you.
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