PERSONAL FINANCE: Your health savings account can be a retirement planning tool [Column]

If you’re retired, one of the biggest expenses you may be confronted with on a regular basis is healthcare. Even if you’re enrolled in Medicare, you may need to pay various medical costs out-of-pocket — and, in general, costs are going up, not down. Fortunately, there are tools that can help make these expenses more manageable, one of which may be a Health Savings Account, or HSA. If an HSA is available to you, you may want to explore its potential benefits. Here’s a primer.

A targeted, tax-advantaged savings tool

HSAs are savings plans associated with high deductible health insurance policies. Many employers offer the option of choosing such a policy, but if you’re retired, it may alternatively be available to you if you purchase individual coverage. HSAs are funded with pre-tax dollars. For those still working, this can be done through payroll deductions (made before income tax withholding is calculated on each paycheck). Otherwise, it can be done through tax-deductible contributions. Money in the account can be invested and grow on a tax-deferred basis. If funds are used to pay for qualifying medical expenses, they can be withdrawn with no federal taxes due and, in most cases, no state taxes as well (check with your tax advisor to find out what rules apply in your case).

In 2022, you can make a contribution of up to $3,650 in an HSA ($4,650 for an individual age 55 or older). A couple can contribute up to $7,300 per year (or $9,300 if both are age 55+).

A flexible account for retirees

Any dollars remaining in your HSA can continue to accumulate in your account and be available to help offset medical expenses in retirement. At that time, you can withdraw dollars from your HSA on a tax-free basis to meet expenses such as:

• Medicare premiums

• Health insurance deductibles

• Dental, vision and hearing care

• A portion of premiums for tax-qualified long-term care insurance

•  Other out-of-pocket medical expenses.

• Good planning makes a difference

You can participate in an HSA prior to age 65, the age at which you qualify to enroll in Medicare. While saving in the plan you may want to try to retain as many assets as you can in the HSA in order to take full advantage of it as a retirement savings vehicle.

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