Building long-term wealth with your HSA
So you know what a health savings account (HSA) is and that you can use it for long-term savings. Now what? How exactly do you use your HSA as a savings tool? You can use them as a compliment to your retirement strategy to build wealth for qualified2 medical expenses, including tax-free Medicare‡ premiums.
Don’t sell yourself short
According to the Devenir Year-End 2012 survey‡, the average HSA individual account balance was $1,807. Most people aren’t taking full advantage of their HSA. The IRS allows a maximum HSA contribution of $3,250 for individuals1 or $6,450 for family1 coverage for 2013 (plus a catch-up amount of $1,000 more for people over 55 years old).
Medical costs are a major financial burden for retirees. Fidelity’s widely-recognized annual study‡ shows an average healthy couple retiring in 2012 at age 65 needed $240,000 for out-of-pocket health care costs (after Medicare and not including long-term care costs).
Everyone faces the possibility of high medical costs in their later years so you should start planning sooner rather than later. Starting to save earlier adds more to savings, and delays limit the amount of the nest egg. Long-term returns may vary, but like all savings plans, it’s always a good idea to start early.
Gain triple tax advantages
It’s also a good idea to always first take advantage of any offered match for your HSA or 401(k)‡. While many further invest in their 401k or IRAs, your HSA may be a more appealing choice in terms of flexibility, tax advantages and long-term growth potential.
It’s important to consider taxes in long-term investing because of the compounding of savings. The comparison chart below shows the key tax considerations for each type of account.
* Not taxed if funds are withdrawn for qualified medical expenses.
** Tax references are at the federal level. States can choose to follow the federal tax-treatment guidelines for HSAs or establish their own; some states tax HSA contributions. If you have questions about your tax implications, consult your tax advisor.
*** Investment products are not FDIC insured, have no bank guarantee, and may lose value.
HSAs have the potential to offer triple tax advantages for individuals – something not seen in other retirement accounts. Only an HSA offers tax benefits at deposit**, during the account’s life and upon a qualified2 medical expense withdrawal. So a person saving for future medical needs can avoid taxes at all three stages in this life cycle.
Invest for long-term growth
Major HSA providers now offer multiple investment options. Learn more about what kind of investment options are available with your employer’s HSA. If your HSA encourages long-term savings, consider participating in the multiple investment options available. And take advantage of any tools offered by your employer to help you plan for the future, including investment objectives, risk tolerance and mix of assets across all accounts.
You have an opportunity to prepare for future health care expenses during retirement or later in life. Start learning more about your employer’s HSA and how you can use it to your advantage.
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1 If you do not meet HSA eligibility requirements for the full tax year, you may not be able to contribute the maximum amount. Please consult your tax advisor or employer for more information.
2 Qualified medical expenses are those defined under Section 213(d) of the Internal Revenue Code.
Investments in securities, whether through a Money Market Sweep Account or through a Self-directed Brokerage Account are:
Not FDIC-Insured • May Lose Value • No Bank Guarantee.
Securities through your self-directed HSA brokerage account are offered through UMB Financial Services, Inc., member FINRA (www.finra.org‡), SIPC (www.sipc.com‡). UMB Financial Services Inc. is a subsidiary of UMB Bank, n.a. UMB Bank, n.a. is a wholly owned subsidiary of UMB Financial Corporation. UMB Financial Services, Inc. is not a bank and is separate from UMB Bank, n.a. and other banks.
Dennis Triplett is chief executive officer of UMB Healthcare Services. He is responsible for the strategic direction in healthcare banking and manages the sales and marketing activities, plus product development and relationship management. Dennis has more than 29 years of experience in the banking industry. He currently serves as board chairman for the Employers Council on Flexible Compensation, chairman of America’s Health Insurance Plans’ HSA Leadership Council and a charter member of the American Bankers Association’s HSA Council.