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At Bend, we’ve heard pretty much every myth in the book (and online) regarding HSAs. So, we’re kicking off our “Dispelling the HSA Myth” series to debunk popular HSA topics that are just plain incorrect. We hope this helps you find some clarity no matter where you are in your HSA journey, whether you’re a seasoned accountholder or just exploring the option of an HSA being the right choice for your specific circumstance.
Our inaugural myth-busting blog post deals with a common misconception that HSAs are only for older, wealthy individuals. While it’s true that those who are older and in higher income brackets can indeed harness some special benefits from having an HSA, so can everyone else, regardless of age or income status. It may come as a shocker, but health savings accounts truly work for everyone.
Let’s dive in and dispel this HSA myth.
Did we mention that HSAs work for everyone? It’s absolutely true and the most important point to dispel the myth of HSAs only being a good choice for older, wealthy accountholders.
Everyone can reap the following benefits from having an HSA:
Combining an HSA-eligible high-deductible health plan (HDHP) with a health savings account is a simple equation with a powerful outcome for those of all ages, income levels and health circumstances. Using an HSA with an HDHP allows accountholders of all kinds to take full advantage of three types of tax savings, while also having a dedicated savings account to use for present and future medical expenses.
Even better, health savings accounts like Bend HSA allow for tax-free account growth through interest and investment opportunities similar to a 401(k).
HSAs also roll over indefinitely with no penalties, meaning you’ll never be faced with a “use it or lose it” scenario at the end of the year or after a job or insurance plan change. Your HSA dollars will always be there for you to use.
And it’s important to note, along with their numerous tax advantages, investment opportunities and rollover capabilities, HSAs also offer a variety of other benefits—like the fact that you own your HSA account and it can travel with you no matter what, regardless of job changes, health insurance plan changes or even retirement—and including job loss or employment impacted by COVID-19. The contributions in your HSA always remain available to use for qualified medical expenses in the same tax-advantaged way as the day you set your HSA up, and you can bring your account along with you to your next employer, continue to use your HSA funds in retirement or maintain it independently with an HSA administrator like Bend.
If you’d like to learn more about why HSAs work for everyone, take a few minutes to read our blog dedicated to that topic. In the meantime, let’s transition to exploring some of the special advantages HSAs offer to those who are older and those who are wealthy.
If you’re approaching retirement, HSAs hold many valuable benefits to help you along the way.
Any HSA accountholder age 55 or older is eligible to utilize an annual HSA catch-up contribution of up to $1,000 to help grow their account beyond the standard maximum annual HSA contribution limit. For 2020, that means you’re able to add an extra $1,000 of contributions on top of either the individual limit of $3,550 or the family limit of $7,100. You’re able to save more quicker and enjoy even more tax savings with the added catch-up contributions.
An HSA’s flexibility and portability also come into play as you approach retirement, as well as when you actually retire. Remember, with HSAs you’ll never be faced with a “use it or lose it” scenario, and your account and all the funds in it stay with you no matter what. And after you reach age 65, you have the flexibility to use your HSA contributions for other purposes beyond just qualified medical expenses without penalty. No other type of tax-advantaged savings account offers that combination of flexibility and portability.
Older HSA accountholders can also leverage their HSA funds as a bridge to Medicare, and even to pay for Medicare premiums themselves. And don’t forget, since HSAs have the ability to be used for long-term care expenses along with any other expenses after age 65, it can be a sound strategy to contribute the maximum annual HSA contribution limit plus the maximum annual HSA catch-up contribution to essentially “overfund” your HSA before retiring. With this approach, you can grow and invest your HSA funds at a rapid pace and set yourself up for stronger financial health throughout retirement.
And if you’re an older individual managing a chronic care condition, consider this—HSAs offer an ever-expanding preventive care list, including care for many chronic conditions, as well as testing for COVID-19. What this means is that as an HSA accountholder, you can bypass your deductible and receive immediate benefits for any care that falls under preventive care. This can equal substantial annual savings, especially if you’re managing a chronic medical condition. And it’s not just medical care that’s covered as preventive—it’s also items purchased like prescription drugs.
You might think that those who are wealthy won’t benefit as much from having an HSA. But that’s another HSA misconception. Individuals with higher incomes can take advantage of unique benefits only HSAs offer.
If you have a higher income and are approaching retirement, you benefit from all the unique HSA advantages listed in the previous section on HSAs for older individuals. But even if retirement is far off in the distance, you still benefit from having an HSA as a wealthy individual.
First and foremost, the tax advantages for those with higher incomes are real. When you consider that HSAs provide three distinct tax advantages—HSA contributions are 100% tax deductible, HSA funds can be used tax-free for any qualified medical expenses and HSA funds grow tax-free—this triple tax advantage helps you short and long-term both from income tax and investment standpoints. You also get immediate tax savings for healthcare costs without having to waste time itemizing deductions. Simply put, HSAs make it easy to save on taxes and grow funds for your future.
Along with potential sizeable tax advantages, wealthy individuals can take an even more proactive investment strategy with their HSA by contributing the maximum HSA contribution limit annually and then investing all the HSA funds and leaving them untouched for any current healthcare costs. With this strategy, you can keep growing your HSA to its fullest potential with the end goal to be able to fund all your retirement healthcare costs without having to tap into any of your other investments and savings. When you consider that a married couple will on average need $285,000 for medical expenses alone throughout their retirement, you can see just how critical an HSA can be, even for those with higher incomes.
If you have, or are considering, an HSA-eligible high deductible health plan (HDHP), you’re missing out if you don’t utilize a health savings account. Plain and simple, an HSA helps you save on taxes, take control of your short and long-term healthcare costs and boost your bottom line. No matter if you’re young or old, wealthy or just starting out, it’s worth your while to open an HSA.
With Bend HSA, we’re here to help you make the most of your health savings account. We offer a simple-to-use, secure HSA with a superior user experience and unmatched customer service and support—for clients of all ages and income levels. Connect with us today and let’s build your best HSA together.