Our previous Blog Post from June 1, 2023, answered the question, Is a Health Savings Account (HSA) right for you? But even in our attempt to simplify the volumes of information about Health Savings Accounts, we realize that this is a complicated decision. So, we are bringing you Health Savings Accounts Part Two: Back to Basics. We hope that this will further explain Health Savings Accounts and why they may be a good choice for you at this point in your health insurance journey.
You can’t know what you don’t take the time to learn and understand. Many people overpay for medical expenses because they do not have a knowledgeable advisor they can trust to help them understand how easy an HSA can be to open and manage. Mike Dietz, owner of MIB Health Insurance says, “I do not know of an easier way to save taxes for expenses that have already been incurred for those who have HSA-eligible health insurance plans.”
There is wisdom in the process of getting back to basics and simplifying things– even something as complicated as an HSA. Sometimes the simplest way to explain a complex issue is through stories. So, meet a few of our clients who have learned about the benefits of opening an HSA and how it helped them find peace of mind.*
Even if Adam ends up saving thousands of dollars in his HSA and remains healthy, he can always use his HSA funds for Medicare Part B premiums in the future. In 2023 Medicare Part B cost $164.90 per month at the lowest income level. That is an expense of almost $2,000. Even though Adam is single, for a couple that would be $4,000 and if you figure you might need a Medicare supplement for ten years, that could be $40,000 you could use from an HSA tax-free. Adam clearly saw that saving money in his HSA would offer huge tax savings in the long run. Look at the document we shared with Adam to help him understand some of the specific details about owning and managing his HSA.
Joe and Mary’s Story
Joe and Mary were eligible for an HSA through their existing insurance plan but had never used it since they didn’t really understand what it was. They were nearing retirement and wanted to make sure they were managing their money to maximize their financial security in retirement. They came to MIB for help in understanding if an HSA was the best choice for them. After reviewing their plan and financial situation, we were able to help them enroll in an HSA. We recommended they make the maximum contribution allowed because they will never have to pay taxes on this savings account. Unlike a Roth IRA/401k account where you pay taxes up front, or a traditional IRA/401k where you pay taxes when you take the money out, an HSA is an account where Joe and Mary will never pay taxes. This will help them manage their taxable income after retirement by taking money out of their HSA. There are limits on annual contributions to HSA’s but because Joe and Mary are both over 55, they can make an additional $1,000. contribution per year. When Joe and Mary turn 65 and are eligible for Medicare, they will not be able to put any more money into their HSA. Some people who still have a group health plan can continue to make contributions but there are specific limitations. Joe and Mary ended up with a very nice tax-free savings account they can use for medical, dental, vision, or other qualified expenses as they head into retirement. Joe and Mary were able to access savings from their HSA to pay for their Medicare Part B premiums which is $164.90 monthly for each of them in 2023.
Adam’s Story
Adam is a healthy, divorced man in his late forties. He knew about his HSA eligibility but was concerned about putting a large amount of money into a savings account he could not use for anything but health expenses. He needed money for things like home improvements and his kid’s education and he could not understand the advantage. We discussed the list of qualified medical expenses that HSA funds can be used for. Adam can use the HSA funds for other lifestyle needs. He will just need to pay taxes at his current rate if he withdraws funds from his HSA for unqualified expenses. We showed him the benefit to start paying into the HSA now even though the benefit may be deferred.
Even if Adam ends up saving thousands of dollars in his HSA and remains healthy, he can always use his HSA funds for Medicare Part B premiums in the future. In 2023 Medicare Part B cost $164.90 per month at the lowest income level. That is an expense of almost $2,000. Even though Adam is single, for a couple that would be $4,000 and if you figure you might need a Medicare supplement for ten years, that could be $40,000 you could use from an HSA tax-free. Adam clearly saw that saving money in his HSA would offer huge tax savings in the long run. Look at the document we shared with Adam to help him understand some of the specific details about owning and managing his HSA.
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