What should you do with your health savings account?
By Deborah Jeanne Sergeant
Health savings accounts allow policyholders to designate dollars tax-free for health expenses not covered by their high-deductible health insurance plan.
Depending upon the plan, this could include things like over-the-counter medication like cough syrup, supplies such as adhesive bandages and durable medical goods like canes or hand braces.
It may also include co-pays and bills for out-of-network medical services when the policyholder needs to see a specialist not in the plan.
The employee, employer or both, supply money to the fund, which the employee owns. Any unused funds roll over to the next year. Upon retirement, account holders can roll them into an IRA.
But should you?
Randy Zeigler, certified financial planner and private wealth adviser in Oswego with Ameriprise, typically says to leave the funds alone upon retirement. You might need them.
“Since healthcare expenses are a significant ongoing expense for many retirees, I usually recommend that my clients retain their HSA account balances and just pay all of their unreimbursed medical and dental costs from their HSA until it is exhausted,” Zeigler said.
A study by Vanguard Research and Mercer Health and Benefits states that a 65-year-old woman typically pays $3,300 to $7,700 annually for premiums and out-of-pocket medical, dental and vision costs. People with chronic health conditions or who suffer an extreme, acute health problem can expect to pay much more.
Typically, this can include things such as over-the-counter medication and first aid items; copays and non-reimbursed medical care such as using an out-of-network provider. Many drug stores’ shelf tags indicate items that qualify. However, policyholders should consult with their specific plan inclusions before making purchases. It’s also important to retain receipts related to these purchases in case the nature of the purchase is questioned later.
Keeping the HSA can help people who have a lot of unreimbursed costs. Think of it as a way to “grow old” with your HSA. It’s a popular notion, keeping the HSA for health-related expenses instead of rolling it into an IRA.
“In retirement, you can continue using your HSA for qualified medical expenses, including long term care premiums,” said Dave Treichler, chartered financial planner and financial adviser with Arabella Wealth Advisors in Syracuse.
But if your health needs are few and you’d rather use the money elsewhere in your life for a more immediate need, you can do that instead. Keep in mind that you won’t do so for free.
“After age 65 you can withdraw for any reason, though nonmedical expenses are subject to a 20% penalty,” Treichler said. “As planning tip, you can make a one-time IRA rollover to your HSA account, $4,300 single and $8,550 for family coverage.”
He also encourages people to “name a beneficiary. It keeps funds out of probate and spouses receive the HSA tax free; non-spouse benefits are taxable.”
Before deciding what to do with your HSA funds, discuss your financial situation with a qualified financial adviser. Every person’s financial picture is different and an adviser can provide detailed input specific to the account holder’s financial goals.
