We’ve all fantasized about the joys of retirement, but how many of us actually have a retirement plan in place to make those dreams come true? Getting a head start on saving for potential medical costs in your retirement is now more important than ever, as healthcare costs have risen over 30% in just the past decade. Fidelity Investments estimates that a couple retiring today will need $300,000 just for medical expenses. Understandably, healthcare is a top stressor for employees when they think about retirement. However, only 42% say they’ve spent time planning for such costs. HSAs are the perfect tool to save up for retirement right now and eliminate financial distress later down the road.
The Triple Tax Advantage
Though HSAs are most often used to cover current medical costs, if these costs are ultimately covered out of pocket, the funds in your HSA can build up towards your retirement instead. Thanks to the triple tax advantage, these funds build up even faster than you might expect. What exactly is the triple tax advantage? It is defined by pre-tax contributions, tax deductions on personal taxes, and the accumulation of tax-free dollars within an HSA:
- If you contribute to your HSA using payroll deductions at work, those contributions are pre-taxed.
- If you purchase an HSA outside of work and fill it with your after-tax dollars, then you get a tax deduction on your personal taxes.
- The contributions that you make to your HSA are tax free, and any withdrawals that you make from it for eligible medical expenses are tax free as well.
Investing in your HSA is one of the smartest decisions you can make. HSA funds can be invested tax-free in mutual funds, stocks, or bonds. (Of course, it is always wise to set aside a set amount of HSA funds for short-term, unanticipated healthcare costs.) Investing in your HSA not only produces rapid growth, but better growth. When your money sits in a bank account you may receive 1 or 2% interest, but when you utilize the investment funds that MotivHealth grants access to, your savings can grow exponentially! When you place the HSA dollars that you are not using for medical care into wise portfolios, your HSA funding will increase significantly. As long as you’ve accumulated the $2000 minimum in your MotivHealth HSA, you’re eligible to invest that balance with us. Anyone can invest in your HSA funds. Simply click on “investments” in your member portal to get started. Feel free to watch the videos on our website that walk you through the process.
The savings in your HSA roll over from year to year, which means if you utilize investment options, they can accrue tax-free interest, adding even more savings to what you already save from tax benefits. HSAs remain intact even when you switch employers. And, unlike tax-deferred retirement plans—such as 401(k) plans—HSAs do not require you to withdraw minimum distributions each year.
The Time Value of Money states that the money you have now is worth more than its identical sum in the future due to its current potential earning capacity. There’s no limit to how much your investments can grow! For example, if a family invested their maximum annual HSA contributions over 30 years at an average 7% annual rate of return, they could accumulate almost $1 million.
MotivHealth is unique in that we offer in-house investment opportunities.
When Retirement Hits
At age 65, your investments really pay off because you can finally use your HSA funds to pay for non-medical expenses (though these non-qualified expenses are not subject to the same tax exemptions). You can even pass along the leftover money in your HSA to your posterity.
“5 Ways HSAs Can Fortify Your Retirement”
“Time Value of Money”