As our clients finalize benefits enrollment and changes for 2015, consideration should be given to a Health Savings Account (HSA) and its potential triple tax-free benefits. HSAs were initially designed to help people with high-deductible health plans get tax relief to pay for current medical expenses not covered by insurance. However, the tax deferred savings benefits can be extended over a lifetime. Health care costs are escalating. The current estimated cost of medical bills for a couple during retirement is $283,000. Even if you are not anticipating high medical bills in the near term or into retirement, clients should consider fully-funding their HSAs as an overlooked tax strategy.
Contributions to HSAs can total up to $3,300 for a single person ($6,550 for a family) in pre-tax dollars with additional $1,000 catch-up contributions for those ages 55 and older. Spouses can each have an account in order to make those catch-up contributions. That adds up to a total potential contribution of $8,550 per family if both spouses have their own HSA and are over 55. As an example: $6,500 contribution over 15 years at 7% return = $164,000.
Whether you need extra money for medical or long-term-care bills over time or not, using your HSA as a savings cushion could be one of the smartest tax-free moves you can make.