| Health Savings Accounts are an excellent way to | | | | in the older spouse's name. This will allow you to |
| build a second retirement account. These | | | | capitalize on the expanded HSA contribution limits |
| tax-favored accounts, which have only been | | | | for people in this age range and maximize your |
| available since January of 2004, can be opened by | | | | HSA contributions. Once that person turns 65 and |
| anyone with a qualifying high-deductible health | | | | is no longer eligible to contribute to their HSA, you |
| insurance plan. Once you open an HSA account, | | | | can open another health savings account in the |
| you can place tax-deductible contributions into it, | | | | younger spouse's name. |
| which grow tax-deferred like an IRA. You may | | | | Strategies to Maximize your HSA Account |
| withdraw money tax-free to pay for medical | | | | Growth |
| expenses at any time. | | | | If your objective is to maximize the growth of |
| The biggest reason more people don't retire | | | | your HSA in order to build up additional funds for |
| before age 65 is lack of health insurance, and | | | | your retirement, there are three important |
| many Americans reach age 65 woefully | | | | strategies you should implement. |
| unprepared for the medical expenses they'll face | | | | Strategy #1: place your money in mutual funds or |
| once they do retire. One of the most important | | | | other investments that have growth potential. |
| long-term reasons for establishing an HSA is to | | | | Though this is riskier than placing your money in |
| build up some money for medical expenses | | | | an FDIC-insured savings account, it is the only |
| incurred during retirement. | | | | way to really take advantage of the tax-deferred |
| Fidelity Investments reports that the average | | | | growth opportunity that an HSA provides. |
| couple retiring in 2006 will need $190,000 to cover | | | | Strategy #2: delay withdrawals from your |
| medical expenses during retirement. This assumes | | | | account as long as possible. Though you may |
| life expectancies of 15 years for the husband and | | | | withdraw money from your HSA tax-free at any |
| 20 years for the wife. | | | | time to pay for qualified medical expenses, you |
| HSAs are, without exception, the best way to | | | | do have the option of leaving the money in the |
| build up money to pay for medical expenses | | | | HSA so that it continues to grow tax-free. As |
| during retirement. You should not contribute any | | | | long as you save your receipts, you can make |
| money to your traditional IRA, 401 (k), or any | | | | medical withdrawals from your account tax-free |
| other savings account until you have maximized | | | | at any future date to reimburse yourself for |
| your contribution to your HSA. This is because | | | | medical expenses incurred today. |
| only health savings accounts allow you to make | | | | As an example, let's say a 45 year old couple |
| withdrawals tax-free to pay for medical expenses. | | | | places $5,450 per year in their HSA over a period |
| You can take these distributions anytime before | | | | of 20 years, they have $2,000 per year in |
| or after age 65. | | | | qualified medical expenses, and they get a 12% |
| Your HSA contributions won't affect your IRA | | | | return on their investments. If they withdraw the |
| limits -- $3,000 per year or $3,600 for those over | | | | $2,000 from their HSA each year, they'll have a |
| 55. It's just another tax-deferred way to save | | | | net contribution of $3,450 per year into their |
| for retirement, with the added advantage being | | | | account, and they'll have $248,581 in their account |
| that you can withdraw funds tax-free if they are | | | | when they begin their retirement years. |
| used to pay for medical expenses. | | | | If on the other hand they delay withdrawing that |
| For early retirees who are healthy, a health | | | | money, they will have $392,686 in their account |
| savings account can also be a smart option to | | | | at age 65. If they choose they can withdraw the |
| help lower their health insurance costs while they | | | | $40,000 to reimburse themselves tax-free for |
| wait for their Medicare coverage. The older | | | | the medical expenses incurred during that 20 year |
| someone is, the more they can save with an | | | | period, and still have $352,686 in their account - |
| HSA plan. For many people in their 50's and 60's | | | | over $100,000 more than if they had withdrawn |
| who are not yet eligible for Medicare, HSAs are | | | | the money each year. |
| by far the most affordable option. | | | | Strategy #3: make the maximum allowable |
| Any money you deposit in your health savings | | | | deposit to your HSA at the beginning of each |
| account is 100% tax-deductible, and the money in | | | | year. Even though you are allowed until April 15 of |
| the account grows tax-deferred like an IRA. For | | | | the following year to make deposits to your HSA, |
| 2006, the maximum contribution for a single | | | | you should take advantage of the tax-free |
| person is the lesser amount of your deductible or | | | | growth in your account by funding it as soon as |
| $2,700. In other words, if your deductible is | | | | possible. The extra interest you can earn by |
| $3,000, you can contribute a maximum of $2,700; | | | | contributing to your account on January 1 of each |
| if your deductible is $2,000, then that is the | | | | year rather than the next April 15 can amount to |
| maximum. For families, maximum is the lesser of | | | | over $40,000 in a 20 year period, and over |
| $5,450 or the deductible. | | | | $100,000 in 30 years. |
| If you're 55 and older, you can put in an extra | | | | Using Your HSA to Pay for Medical Expenses |
| $700 catch-up contribution in 2006, $800 in 2007, | | | | during Retirement |
| $900 in 2008, and an additional $1,000 from 2009 | | | | When you enroll in Medicare, you can use your |
| onward. The contribution limit is indexed to the | | | | account to pay Medicare premiums, deductibles, |
| Consumer Price Index (CPI), so it will increase at | | | | copays, and coinsurance under any part of |
| the rate of inflation each year. | | | | Medicare. If you have retiree health benefits |
| How much you accumulate in your HSA will | | | | through your former employer, you can also use |
| depend on how much you contribute each year, | | | | your account to pay for your share of retiree |
| the number of years you contribute, the | | | | medical insurance premiums. The one expense |
| investment return you get, and how long you go | | | | you cannot use your account for is to purchase a |
| before withdrawing money from the account. If | | | | Medicare supplemental insurance or "Medigap" |
| you regularly fund your HSA, and are fortunate | | | | policy. |
| enough to be healthy and not use a lot of medical | | | | Though Medicare will pay for the majority of |
| care, a substantial amount of wealth can build up | | | | health expenses during retirement, there many be |
| in your account. | | | | expenses that Medicare will not cover. Nursing |
| Health savings accounts are self-directed, meaning | | | | home expenses, un-conventional treatments for |
| that you have almost total control over where | | | | terminal illnesses, and proactive health screenings |
| you invest your funds. There are numerous banks | | | | are all examples of medical expenses that will not |
| that can act as your HSA administrator. Some | | | | be paid for by Medicare, but that you can pay for |
| offer only savings accounts, while others offer | | | | from your HSA. |
| mutual funds or access to a full-service brokerage | | | | Long-term care is assistance with the activities of |
| where you may place your money in stocks, | | | | daily living, such as dressing, bathing, or feeding |
| bonds, mutual funds, or any number of | | | | yourself. It can be provided in your home, a |
| investment vehicles. | | | | retirement community, or a nursing home. |
| One of the biggest advantages of retirement | | | | Long-term care expenses can be paid for using |
| accounts like HSAs are that the funds are allowed | | | | funds from your HSA, and long-term care |
| to grow without being taxed each year. This can | | | | insurance can even be paid for from the HSA up |
| dramatically increase your return. For example, if | | | | to the following maximum annual amounts: |
| you are in the 33% tax bracket, you would need | | | | - Age 40 or under: $260 |
| a 15% return on a taxable investment to match a | | | | - Age 41 to 50: $490 |
| tax-deferred yield of only 10%. | | | | - Age 51 to 60: $980 |
| As another example, if you are in a 33% tax | | | | - Age 61 to 70: $2,600 |
| bracket and were to invest $5,450 each year in a | | | | - Age 71 or over: $3,250 |
| taxable investment that yielded a 15% return, | | | | To establish a health savings account, you must |
| you would have $312,149 after 20 years. If you | | | | first own an HSA-qualified high deductible health |
| put that same money in a tax-deferred | | | | insurance plan. Compare HSA plans side by side to |
| investment vehicle like an HSA, you would have | | | | determine the best value to meet your needs. |
| $558,317 - over $240,000 more. | | | | Once you have your high deductible health |
| Because catch-up contributions are allowed only | | | | insurance plan in place, you can open your Health |
| for people age 55 and older, if one or both of you | | | | Savings Account with the financial institution of |
| are under age 55 you should establish your HSA | | | | your choice. |