Questions answered: Should you consider HSAs or IRAs? How do HSAs actually work? What are the requirements to make use of an HSA?
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Key Takeaways:
- If used properly, HSAs can be one the best retirement investment accounts.
- How an HSA works:
- You can only utilize an HSA if you or your spouse are covered by a high deductible health plan at work.
- Any money that you put into an HSA is pre-tax.
- As the funds grow, the growth is also tax-free.
- If you pull funds for qualified medical expenses, that is tax free as well.
- California and New Jersey don’t recognize HSAs, so you do not have the same tax benefits in those states.
- After age 65, you can use HSA money for non-medical expenses.
- How much can you put into an HSA?
- For individuals: up to $8350.
- For a family plan: up to $7300.
- If you’re 55 or older, there’s an additional annual $1000 catch-up contribution.
- How HSA contributions are different to retirement plan contributions.
- With a 401(k), you have your own limit, and your employer can match it.
- If you’re 50 or older, you can contribute up to $27,000 and your employer can contribute above that up to an IRS limit.
- With an HSA, your employer’s contribution counts against your contribution limit.
- With an FSA, any amount that you don’t use is forfeited.
- With a 401(k), you have your own limit, and your employer can match it.
- HSA eligibility.
- High-deductible health plan
- There are no income limits.
- With IRAs, if you earn over a certain amount of income, you can no longer contribute to them.
- There are no required minimum distributions.
- There’s no timeframe in which you need to use the funds.
- The IRS allows you to make a one-time transfer of your IRA funds into your HSA.
- This is subject to the maximum contribution limit.
- Beneficiaries:
- When you pass away, the HSA becomes your beneficiary’s HSA.
- The funds in the HSA become taxable to any non-spouse beneficiary.
- If you are enrolled in Medicare, you can continue to use your HSA funds, but you can’t make new contributions.
Episode Timeline:
[01:07] Listener question.
[04:21] How an HSA works.
[08:54] How much can you put into an HSA?
[09:47] How HSA contributions are different to retirement plan contributions.
[13:07] HSA eligibility.
[14:56] How to leverage an HSA to improve what you’re doing financially.
[22:32] Beneficiaries.
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