As a result, resources such as health savings accounts, which help offset the burden of medical costs, or student loan debt support and tools for building emergency savings continue to grow in popularity as employers’ “wellness benefits.” The important considerations of retirement, health care, paying off debt and the desire to build an emergency fund are all factors to consider when thinking about one’s future. In today’s world, individuals are often faced with competing priorities when it comes to divvying up their paychecks and making decisions about where to save. Your employer may have more to offer than you think Just make sure to hold on to your receipts to verify all distributions. This strategy is another way funds in an HSA can serve as emergency savings. Plus, if you are able to, you can choose to cover a medical bill out of pocket and then be reimbursed tax-free for that expense in the future when you then need those funds. All HSA withdrawals used to pay for qualified medical expenses (even if unplanned) are tax-free. The interest in growing an emergency fund is becoming more and more critical for individuals today - so much so that recent Voya data has found more than half (55%) of working Americans are more likely to stay with their current employer if they offer a workplace emergency savings plan.(3)įortunately, the dollars in your HSA can be used for unplanned or emergency medical expenses as long as they are eligible. It’s important to understand that removing funds from a retirement plan may not be an option, and if it is, it should not be done lightly. HSAs can be used for emergency health care savingsĪccording to Voya data, we know that a lack of emergency savings can put one’s retirement at risk, as employees without adequate emergency savings are 13 times more likely to take a hardship withdrawal from their retirement account.(2) And, when faced with a short-term, unexpected need - such as an emergency trip to the hospital - some people may choose to dip into this account to cover the expense. Unless you plan to use your HSA money for planned expenses in the near future, investing can give your money an opportunity to grow over time, but as with any investment, there are risks make sure to fully explore those risks before choosing to invest your balance. So, HSAs can serve as an important vehicle with a potential to grow over the long term. While the threshold varies by HSA plan, some plans may require only an HSA balance of $1,000 to begin investing your funds. Similar to lineups available in typical workplace retirement accounts, like a 401(k), once you reach a certain threshold in your account, your HSA funds can be invested. HSA funds can be an investment opportunityĪccording to Voya research, only 26% of working Americans know that HSAs can be used as an investment vehicle - a powerful benefit of these savings solutions. Just keep in mind once you turn 65 and are enrolled in Medicare, you are no longer eligible to contribute. However, these distributions will be taxed much like any normal distribution from a retirement account, like an IRA or 401(k).Īnd even in retirement, if you decide to spend your HSA dollars on qualifying medical expenses, you will still enjoy tax-free distributions - providing flexibility to spend your money how you want. Therefore, you can use your HSA to pay for general living expenses - like housing, food or travel, for example. However, what many people may not realize is that once you reach retirement age at 65, HSA funds can be used for non-medical expenses without being assessed a 20% penalty. If funds are used for non-eligible expenses, they are taxed and penalized an additional 20%. Not only can HSAs offer flexibility on how the accounts are funded, what the funds can be used for and when, they offer triple tax benefits, including pre-tax contributions - and the potential for both tax-free growth and tax-free withdrawals.Īs employees work toward their retirement, they’ll be able to make pre-tax contributions and tax-free withdrawals as needed for HSA-qualified expenses. Enter HSAs, which are uniquely positioned to potentially help lessen the retirement health care savings gap. So, when it comes down to it in retirement, many individuals simply don’t have enough savings to cover health care expenses and daily living expenses. Additionally, the longer retirement lasts, the greater the likelihood that health care needs will increase.
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