Fall and Insurance Enrollments are here!
Happy Fall everyone. Fall…. kids back to school, Halloween, pumpkin spice lattes and Insurance Enrollment time! Yes, for the next two weeks or so, depending on your work place you could be asked to re-enroll in your company benefit plans. This is the time of year that you may have to choose a new health insurance plan, opt in for dental and vision, decide on short and long-term disability insurance and any other options your employer may provide for you. If you have any questions about this process, please do not hesitate to reach out, I am happy to help you navigate these enrollment steps.
Today, I would like to discuss another benefit that your employer may be offering–an HSA (Health Savings Account) through your High-Deductible Health Savings (HDHP) care plan and why I think they are a POWERFUL retirement savings tool.
High-Deductible Health Savings Plans
A High-Deductible Health Savings plan, which is not the most flattering name, by the way, does not really shed any light on the benefits or who should be choosing this plan. The HDHP are very favorable for healthy people, younger people and highly compensated people. You do have a higher deductible for your plan, compared to traditional plans like a PPO but typically your premiums are lower. The aspect of the plan that I think is unique and worth planning for is the Health Savings Account (HSA) that comes with the HDHP plan. An HSA is a government-regulated savings account that lets you save pre-tax income to cover health care costs. When you select an HDSP you will also receive an HSA plan to pay for your qualified medical expenses.
Normally your employer will contribute a set amount to your account each year, and you can use the money to pay for qualified medical expenses, tax free. However, you as the employee are also allowed to contribute to the account, below are the amounts:
Maximum 2019 HSA Contribution Maximum 2020 HSA Contribution
Individual HDHP $3500 Individual HDHP $3550
Family HDHP $7000 Family HDHP $7100
Catch-up Contribution $1000 Catch-up Contribution $1000
(for 55 years and older) (for 55 years and older)
Keep in mind that the contributions by the employer and the employee cannot exceed the HSA max contributions for the year, listed above.
Triple Tax Savings Advantage!
The contributions, growth and the withdrawals are all tax free, as long as you use the money for a qualified medical expense. The definition of qualified expense is very common sense and when you retire, if you have built up a good-sized HSA account, you can use the account to pay your Medicare premiums. The amazing part about these accounts is that they are Federally tax free for everyone, state tax free, except for California and New Jersey and the pre-tax contributions avoid the 7.65% FICA payroll tax and if you are the employer, you also avoid the FICA payment on your contribution. And the earnings grow tax free.
HSA’s are Portable
If you leave your current employer, you can take the account with you or roll it over to your new employer’s plan. The account is an Individual account, but you can use the money on your spouse and dependent’s qualified medical expenses, as well as your own. You can also name your spouse as a beneficiary of the account and when you pass away, they can put the account in their name. If you leave the account to a non-spouse beneficiary, they have one year to pay all of your medical expenses and then they will inherit the account and will have to pay ordinary income tax on the money received.
Do not confuse an FSA with an HSA
An FSA is a flexible spending account and the most significant difference between the FSA and HSA is that if you don’t spend all of the money in the FSA by the end of a set period the money will be transferred to the employer because the account is owned by the employer. However, with the HSA, contributions can roll over each year because you have control over the account.[1]
How can an HSA help in retirement?
Health care costs do not end at age 65 (if you thought they did, please call me). “A couple retiring in 2019 can expect to spend $285,000 in health care and medical expenses throughout their retirement.” For singles, women should estimate $150,000 and single males should expect to spend around $135,000.[2] I find that most retirees are grossly underestimating what this amount could be.
If you have an HSA and you don’t think you are utilizing it to your full advantage, contact me.
Wrap Up
If you have never had this type of plan before but your company is offering one this year, contact me and we can discuss the differences. Also, if you have an adult child, that is not a dependent but is covered by your High Deductible Plan until they are 26 years old, contact me because there are some opportunities that you need to be aware of.
I hope this information makes you feel more informed as we head into the insurance enrollment time of year. As always, do not hesitate to give me a call if you have any questions. 480-802-9620
Happy Fall!
[1] https://www.valuepenguin.com/banking/difference-between-fsa-and-hsa
[2] Fidelity “Retiree Health Care Cost Estimate” – April 2, 2019