| Health Savings Accounts are an excellent way to | | | | older spouse's name. This will allow you to capitalize |
| build a second retirement account. These tax-favored | | | | on the expanded HSA contribution limits for people in |
| accounts, which have only been available since | | | | this age range and maximize your HSA contributions. |
| January of 2004, can be opened by anyone with a | | | | Once that person turns 65 and is no longer eligible to |
| qualifying high-deductible health insurance plan. Once | | | | contribute to their HSA, you can open another health |
| you open an HSA account, you can place | | | | savings account in the younger spouse's name. |
| tax-deductible contributions into it, which grow | | | | Strategies to Maximize your HSA Account Growth |
| tax-deferred like an IRA. You may withdraw money | | | | If your objective is to maximize the growth of your |
| tax-free to pay for medical expenses at any time. | | | | HSA in order to build up additional funds for your |
| The biggest reason more people don't retire before | | | | retirement, there are three important strategies you |
| age 65 is lack of health insurance, and many | | | | should implement. |
| Americans reach age 65 woefully unprepared for the | | | | Strategy #1: place your money in mutual funds or |
| medical expenses they'll face once they do retire. | | | | other investments that have growth potential. |
| One of the most important long-term reasons for | | | | Though this is riskier than placing your money in an |
| establishing an HSA is to build up some money for | | | | FDIC-insured savings account, it is the only way to |
| medical expenses incurred during retirement. | | | | really take advantage of the tax-deferred growth |
| Fidelity Investments reports that the average couple | | | | opportunity that an HSA provides. |
| retiring in 2006 will need $190,000 to cover medical | | | | Strategy #2: delay withdrawals from your account as |
| expenses during retirement. This assumes life | | | | long as possible. Though you may withdraw money |
| expectancies of 15 years for the husband and 20 | | | | from your HSA tax-free at any time to pay for |
| years for the wife. | | | | qualified medical expenses, you do have the option |
| HSAs are, without exception, the best way to build | | | | of leaving the money in the HSA so that it continues |
| up money to pay for medical expenses during | | | | to grow tax-free. As long as you save your receipts, |
| retirement. You should not contribute any money to | | | | you can make medical withdrawals from your |
| your traditional IRA, 401 (k), or any other savings | | | | account tax-free at any future date to reimburse |
| account until you have maximized your contribution | | | | yourself for medical expenses incurred today. |
| to your HSA. This is because only health savings | | | | As an example, let's say a 45 year old couple places |
| accounts allow you to make withdrawals tax-free to | | | | $5,450 per year in their HSA over a period of 20 |
| pay for medical expenses. You can take these | | | | years, they have $2,000 per year in qualified medical |
| distributions anytime before or after age 65. | | | | expenses, and they get a 12% return on their |
| Your HSA contributions won't affect your IRA limits | | | | investments. If they withdraw the $2,000 from their |
| -- $3,000 per year or $3,600 for those over 55. It's | | | | HSA each year, they'll have a net contribution of |
| just another tax-deferred way to save for | | | | $3,450 per year into their account, and they'll have |
| retirement, with the added advantage being that you | | | | $248,581 in their account when they begin their |
| can withdraw funds tax-free if they are used to pay | | | | retirement years. |
| for medical expenses. | | | | If on the other hand they delay withdrawing that |
| For early retirees who are healthy, a health savings | | | | money, they will have $392,686 in their account at |
| account can also be a smart option to help lower | | | | age 65. If they choose they can withdraw the |
| their health insurance costs while they wait for their | | | | $40,000 to reimburse themselves tax-free for the |
| Medicare coverage. The older someone is, the more | | | | medical expenses incurred during that 20 year period, |
| they can save with an HSA plan. For many people in | | | | and still have $352,686 in their account - over |
| their 50's and 60's who are not yet eligible for | | | | $100,000 more than if they had withdrawn the |
| Medicare, HSAs are by far the most affordable | | | | money each year. |
| option. | | | | Strategy #3: make the maximum allowable deposit to |
| Any money you deposit in your health savings | | | | your HSA at the beginning of each year. Even though |
| account is 100% tax-deductible, and the money in | | | | you are allowed until April 15 of the following year to |
| the account grows tax-deferred like an IRA. For | | | | make deposits to your HSA, you should take |
| 2006, the maximum contribution for a single person is | | | | advantage of the tax-free growth in your account |
| the lesser amount of your deductible or $2,700. In | | | | by funding it as soon as possible. The extra interest |
| other words, if your deductible is $3,000, you can | | | | you can earn by contributing to your account on |
| contribute a maximum of $2,700; if your deductible is | | | | January 1 of each year rather than the next April 15 |
| $2,000, then that is the maximum. For families, | | | | can amount to over $40,000 in a 20 year period, and |
| maximum is the lesser of $5,450 or the deductible. | | | | over $100,000 in 30 years. |
| If you're 55 and older, you can put in an extra $700 | | | | Using Your HSA to Pay for Medical Expenses during |
| catch-up contribution in 2006, $800 in 2007, $900 in | | | | Retirement |
| 2008, and an additional $1,000 from 2009 onward. | | | | When you enroll in Medicare, you can use your |
| The contribution limit is indexed to the Consumer | | | | account to pay Medicare premiums, deductibles, |
| Price Index (CPI), so it will increase at the rate of | | | | copays, and coinsurance under any part of Medicare. |
| inflation each year. | | | | If you have retiree health benefits through your |
| How much you accumulate in your HSA will depend | | | | former employer, you can also use your account to |
| on how much you contribute each year, the number | | | | pay for your share of retiree medical insurance |
| of years you contribute, the investment return you | | | | premiums. The one expense you cannot use your |
| get, and how long you go before withdrawing money | | | | account for is to purchase a Medicare supplemental |
| from the account. If you regularly fund your HSA, | | | | insurance or "Medigap" policy. |
| and are fortunate enough to be healthy and not use | | | | Though Medicare will pay for the majority of health |
| a lot of medical care, a substantial amount of wealth | | | | expenses during retirement, there many be expenses |
| can build up in your account. | | | | that Medicare will not cover. Nursing home expenses, |
| Health savings accounts are self-directed, meaning | | | | un-conventional treatments for terminal illnesses, and |
| that you have almost total control over where you | | | | proactive health screenings are all examples of |
| invest your funds. There are numerous banks that | | | | medical expenses that will not be paid for by |
| can act as your HSA administrator. Some offer only | | | | Medicare, but that you can pay for from your HSA. |
| savings accounts, while others offer mutual funds or | | | | Long-term care is assistance with the activities of |
| access to a full-service brokerage where you may | | | | daily living, such as dressing, bathing, or feeding |
| place your money in stocks, bonds, mutual funds, or | | | | yourself. It can be provided in your home, a |
| any number of investment vehicles. | | | | retirement community, or a nursing home. Long-term |
| One of the biggest advantages of retirement | | | | care expenses can be paid for using funds from your |
| accounts like HSAs are that the funds are allowed to | | | | HSA, and long-term care insurance can even be paid |
| grow without being taxed each year. This can | | | | for from the HSA up to the following maximum |
| dramatically increase your return. For example, if you | | | | annual amounts: |
| are in the 33% tax bracket, you would need a 15% | | | | - Age 40 or under: $260 |
| return on a taxable investment to match a | | | | - Age 41 to 50: $490 |
| tax-deferred yield of only 10%. | | | | - Age 51 to 60: $980 |
| As another example, if you are in a 33% tax bracket | | | | - Age 61 to 70: $2,600 |
| and were to invest $5,450 each year in a taxable | | | | - Age 71 or over: $3,250 |
| investment that yielded a 15% return, you would | | | | To establish a health savings account, you must first |
| have $312,149 after 20 years. If you put that same | | | | own an HSA-qualified high deductible health insurance |
| money in a tax-deferred investment vehicle like an | | | | plan. Compare HSA plans side by side to determine |
| HSA, you would have $558,317 - over $240,000 | | | | the best value to meet your needs. Once you have |
| more. | | | | your high deductible health insurance plan in place, you |
| Because catch-up contributions are allowed only for | | | | can open your Health Savings Account with the |
| people age 55 and older, if one or both of you are | | | | financial institution of your choice. |
| under age 55 you should establish your HSA in the | | | | |