If you’re savvy enough to use your HSA for retirement, here are some HSA pro tips to squeeze out the most value.
Save receipts
You should be paying current medical expenses from your bank account, not your HSA. But you’ll want to reimburse yourself from your HSA in retirement, for the expenses you’re paying now. In this way, you can withdraw tax-free each year in retirement, above and beyond that year’s medical expenses!
To be reimbursable, an expense has to occur after you’ve established an HSA, and you need proof, so save your receipts! Upload pictures to cloud storage for easy access later.
Use as a traditional IRA after 65
With a traditional IRA, you pay tax on withdrawals, but you don’t pay a penalty if you’re over a certain age.
HSAs have a special feature that makes them like a traditional IRA after you turn 65. After 65, you no longer pay a penalty for using HSA funds on non-medical expenses. These withdrawals aren’t tax-free, but you’re no worse off than if you had contributed to a Traditional IRA instead of an HSA.
Make a charity the remainder beneficiary
The first two HSA pro tips were for while you’re alive. Here’s a way to maximize your HSA’s value even after you’re gone.
If you’re married, name your spouse as the beneficiary of your HSA. At your death, your HSA becomes your spouse’s HSA, with all the same advantages.
After a spouse, consider naming your favorite charity as the beneficiary instead of your kids. If a non-spouse inherits your HSA, the full value of the account gets paid out to them, and taxed to them, in the year of your death.
If your kids are in a high tax bracket, they may lose up to 50% of the account value to taxes! By contrast, a charity doesn’t pay income taxes so it keeps 100% of the value.
To maximize the value of your HSA for retirement, schedule a FREE Financial Pulse Assessment™. This is a 3-step process to get clarity on your finances and “test drive” our services.
