“Whether the contributions are saved or spent, an H.S.A. allows for income to avoid taxation today,” the report said.
And for individuals who can afford to achieve this, saving and investing H.S.A. contributions long run, and paying for current health costs out of pocket, can bolster wealth significantly later in life, Vanguard found.
People 55 or older can contribute an additional $1,000 to an H.S.A. above the Internal Revenue Service’s annual limits of $3,850 for a single person and $7,750 for families in 2023, said Sara Taylor, senior director of worker spending accounts at WTW, a advantages consultant.
“The reality is that the majority people need more medical care, and it could actually be expensive,” she said.
Once enrolled in Medicare, the federal health plan for older Americans, you can’t proceed contributing to an H.S.A. — but you possibly can spend the cash you’ve collected tax-free on medical needs, including Medicare premiums and out-of-pocket costs, Ms. Taylor said. (Premiums for supplemental Medigap policies, nevertheless, will not be H.S.A. eligible.) Once you switch 65, you may as well withdraw H.S.A. funds for expenses unrelated to health care. You’ll pay bizarre income tax but won’t owe a penalty.
Here are some questions and answers about health savings accounts:
What can I purchase with my H.S.A.?
You can spend your savings on a wide range of medical and health expenses, including doctor visits, hospital stays, and vision and dental care. During the pandemic, the federal government expanded the list of eligible expenses to incorporate tampons and pads in addition to nonprescription medicine like pain relief and allergy drugs. For an entire list of eligible health expenses, see I.R.S. Publication 502.
