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Approaching Retirement? Five Tips to Maximize Your Investment HSA

Aging creates unique circumstances for those with health savings accounts (HSAs). Generally, approaching age 65 limits the ability to contribute to your HSA. But there are some strategies you can employ to squeeze every dollar into your HSA even as you approach retirement age.

The consensus is that healthcare costs in retirement will be one of our largest expenses. Fidelity estimates that the average couple will need $280,000 in today’s dollars to cover healthcare expenses throughout retirement. But remember, your HSA can be used to pay for Medicare parts B and D, long-term care premiums, long-term care, and all the normal medical, vision, and dental expenses you will experience in retirement. So show your HSA a little love.

1. The More the Merrier

First, both you and your spouse should have your own HSA the year you turn 55. This allows you to get all of the catch-up contributions you deserve. Internal Revenue Service (IRS) regulations require that each HSA catchup contribution be associated with one Social Security number, so you and your spouse each need an HSA in order to max out your contributions. Don’t worry who has more, you can each spend your HSA dollars to pay the other’s eligible medical expenses. And if your spouse is younger, that second HSA can be even more valuable as you’ll see below.

2. Transfer and Invest

Even if you can’t contribute to an HSA because you’re enrolled in Medicare, you can still grow your HSA. Most HSAs are still being held in low interest checking accounts. But even if you are no longer eligible to contribute you can still move your balance to an investment-focused HSA. Note that many HSAs charge a transfer fee to move your money to the new HSA. However, the receiving HSA is sometimes willing to offset that transfer out fee you are paying to the old HSA; it never hurts to ask.

3. Shift the HSA Contributions to Your Spouse

In many married couples, the breadwinner and insured party is the older of the two spouses. Often that older spouse will enroll in Medicare as soon as possible. But in some cases they continue to carry the family health care policy at work in order to cover their spouse. And this presents an opportunity. The spouse has family coverage, and in the eyes of the IRS can make the family contribution to her, or his, HSA. The older spouse who happens to be on Medicare can no longer contribute to an HSA but as a family, they can make the family contribution to the HSA ($6,900 in 2018) and one catch-up amount of $1,000 (assuming the contributing spouse is 55 or older). We know that both spouses have their own HSAs for catch up purposes, as we advised earlier. So it is easy to shift who makes the contribution from the spouse covered by Medicare to the spouse who is primarily covered only by the high deductible. It can’t be payroll deducted from the ineligible spouses’ income, so you may sacrifice the FICA savings.

4. Postpone Medicare Enrollment

If you are employed and covered by your employer’s health care plan you may be able to postpone enrollment in Medicare. Note: if you are currently receiving any kind of Social Security or railroad retirement benefits you are automatically enrolled in Medicare part A and this tip no longer applies. Postponing your enrollment in Medicare and your acceptance of Social Security retirement benefits allows you to extend your eligibility to make contributions to your HSA. There are some requirements you must meet: You must be employed and covered by health insurance through your current employer. And your insurance must be what is known as creditable coverage (most employer sponsored plans meet this criteria). To be on the safe side always check with Medicare at Medicare.gov. Also, if you postpone your Medicare enrollment, there are some specific timing requirements you must meet when you do transition from your employer plan to Medicare.

5. Shoebox Those Receipts

A tried-and-true strategy for growing your HSA is shoeboxing your receipts and investing your balance. Many people don’t realize that HSA dollars come out tax-free for medical expenses at any age. For those retirees attempting to minimize their tax liability, the ability to generate income from their HSAs by reimbursing themselves for prior or current medical expenses can be quite helpful. Additionally, HSAs have no required minimum distributions, and withdrawals from your HSA for medical events do not count as taxable income. This give savvy retirees an opportunity to balance income from their HSAs and withdrawals from their 401(k)s to minimize their taxable income.

Want to know more about how Medicare impacts your HSA?

Download our free Guide to Health Savings Accounts and Medicare and discover strategies you can use to maximize your HSA investment once you are eligible to enroll in Medicare.

Download my Guide to Health Savings Accounts and Medicare

Health Savings Accounts and Medicare

 

Author: James Denison