How an HSA can be a powerful investment and retirement tool

How an HSA can be a powerful investment and
retirement tool

Retirement & Longevity

Complement your retirement plan with a health
savings plan for the things Medicare doesn’t cover.

Retirement is an exciting time and a new phase of life
worth celebrating with family and friends; however, planning for retirement can
sometimes bring uncertainty. Things like changes in your personal life, market
fluctuations and uncertainty around Social Security can raise questions in even
the most detailed plan.

Although Medicare covers a variety of medical expenses,
it isn’t the all-encompassing healthcare coverage many people
assume. Fortunately, you can leverage the benefits of a health savings
account (HSA) to accumulate additional savings for medical and
healthcare-related expenses.

An HSA can help cover healthcare costs that Medicare
doesn’t, along with dental, hearing and vision expenses. With comparable – and,
in some cases, better – perks than a 401(k) or IRA, your HSA can help you save
and prepare.

Who is eligible for an HSA and what are some
other requirements?

• Anyone
  with a high-deductible health policy can qualify for an HSA. It is not
  limited to employees.
• There
  are no income limits affecting eligibility.
• You
  do not need earned income to contribute to an HSA.
• The
  HSA belongs to you, not to your employer. If you have a qualified
  high-deductible health policy through your employer but your employer does
  not offer an HSA, you can still open an HSA.
• An
  HSA can be set up through any qualified trustee or custodian.
• You
  may sign up for and contribute to an HAS as long as you have not yet
  enrolled in Medicare Part A or B. Once you enroll in Medicare, however,
  you may no longer make contributions to your HSA.

An HSA is a tax-advantaged medical savings account that
allows you to set money aside and withdraw funds to pay for qualified medical
expenses. HSA accounts are unique in that they are triple tax advantaged.
Contributions to an HSA are tax deductible, earnings are tax free, and
distributions from HSA accounts are tax and penalty free if the funds are used
to pay for or reimburse yourself for qualified medical expenses.

HSAs can be especially useful because they are not “use
it or lose it” accounts. Unlike flexible spending accounts, unused HSA dollars
roll over every year.

The annual amount you can contribute to an HSA depends on
whether you have single or family health coverage, if you have continual
coverage throughout the year, and if you are eligible to make a catch-up
contribution (for age 55 and older). For 2025, HSA contribution limits are
$4,300 for an individual or $8,550 for a family. Individuals 55 and older can
contribute an additional $1,000 catch-up contribution for a total of $5,300 per
year.

Distributions that are used for other purposes beyond
qualified medical expenses are subject to tax and a 20% penalty if you are
under age 65. If you are 65 or older, you can use your HSA much like a 401(k)
and withdraw funds for any purpose but will have to pay income taxes on
withdrawals made for nonmedical purposes.

Thinking ahead

If you or your spouse have creditable health insurance
from a group employer, then you could consider delaying Medicare enrollment and
continuing to contribute to your HSA, even once you turn 65. Something to
consider is that if you decide to delay enrolling in Medicare beyond age 65,
when you do eventually enroll, Medicare will automatically give you six months
of retroactive benefits. This means if you decide to delay enrollment, you’ll
need to stop contributing to an HSA six months before you do decide to enroll
in Medicare. If you do delay enrollment, this may also impact how much you can
contribute in that final year, depending on when in the year you eventually
enroll.

Your decision to delay may depend on the benefits
coverage between Medicare and your employer, plan costs or your current tax
picture and the tax advantages you gain by contributing to an HSA. No two
individuals face the same situation when it comes to their healthcare benefits.
Depending on your personal circumstances, goals and budget, an HSA may help you
to maximize your benefits.

Pendle Hill Advisors is proud to contribute to the
Montgomery County News with our weekly curated financial news and topics. If
you have any questions about the markets, your financial plan, or anything,
please feel free to reach out to our office for a no cost initial
consultation.

Kent
Pendleton, AAMS®

Financial
Advisor, RJFS

Pendle
Hill Advisors LLC

14375
Liberty St, Ste 109 | Montgomery, TX 77356

T
936-297-8267

Kent.Pendleton@raymondjames.com | www.raymondjames.com/pendlehilladvisors

Material created by Raymond James for use by its
advisors. Securities
offered through Raymond James Financial Services, Inc. Member FINRA/SIPC.
Investment advisory services are offered through Raymond James Financial
Services Advisors, Inc. Pendle Hill Advisors is not registered broker dealers
and is independent of Raymond James Financial Services.