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The season for filing taxes is upon us once again. We’re getting closer to the deadline for filing for 2023. We wanted to share a few tips and reminders about health savings accounts (HSA) you’ll need for your tax return. HSA Tax Prep Checklist Check your W-2 for HSA payroll contributions Get your 1099-SA form...
Now it’s time to make it work for you. You already know that contributions are tax-deductible and that earnings and qualified withdrawals are tax-free, making HSAs incredibly powerful savings tools, both for current medical expenses and for your future. You also know that investing your HSA funds will allow them to grow even faster than simply letting them collect interest. But did you know that an HSA is also your best long-term retirement option?
There are advantages to having a 401(k) or an IRA—such as higher contribution limits and the potential for tax-free distributions in retirement if you have a Roth IRA—and it’s a good idea not to put all your retirement eggs in one basket. But there are also disadvantages to only having these other types of accounts. For example, say you have a major health emergency but no way to cover the expense, so you decide to withdraw the necessary funds from your 401(k) or IRA. Not only will you be taxed on this income, but if you’re not yet 59½, you’ll be facing a 10% penalty on top of that.
With a Health Savings Account from Advantage Administrators, you can withdraw the money you need for medical expenses tax-free, with no penalty, regardless of your age. In addition, investments in HSAs have been shown to outperform both Roth IRAs and 401(k)s, offering a 31% increase in purchasing power at the time of retirement over these other types of accounts. That’s a huge percentage!
If you aren’t investing your HSA funds yet, why not? The funds in your account will earn interest, of course, but the expected rate of return on mutual funds is many times higher than the standard interest rate. Not only will you make much more money by investing, but you’ll also strengthen your retirement account. By contributing to an HSA and then investing those funds, you’re protecting yourself from the potential necessity of tapping IRA funds to pay for large unexpected medical expenses—and the penalties that come with those early withdrawals.
Of course, even the savviest investors seek ways to maximize their investment earnings, and you’re in luck, because we’ve done the research for you. Keep reading to find out how to make the most of your HSA investments.
SIMPLICITY IS KEY
Simplicity is essential to your everyday life—why should your long-term savings be any different? When it comes to monitoring your investments, remember that fluctuations in prices are par for the course and that making investment decisions based on those fluctuations can be risky. Whether you check on your investments daily or quarterly, you’ll want to make sure you:
Assess the performance of your current investments;
Examine your available options, since they can change periodically; and
Evaluate any life changes you may have experienced to see how they might impact your retirement planning.
At Advantage Administrators, we make it simple for you to keep track of your investments, whether you’re at home or on the road. Our online portal allows you to track your account balance as well as view your investment accounts. And if you’re on the go, you can use our mobile app to access all the same information. It’s easy to check balances and manage your HSA investments right in the palm of your hand. Download our app for your Apple or Android device today!
EMBRACE NECESSARY CHANGE
It’s no secret that financial needs can change over time. After all, a single man in his early twenties has very different financial needs from a married mother of three in her late forties. This change in circumstances may result in the need to fine-tune your investment strategy, especially since the estimate for how much retirees will need in order to pay for their healthcare costs changes annually. Periodic analysis of your investment goals will help you determine if your current needs are being met and if you’re still on track to meet your retirement goals, or if you need to change things up.
It’s important to have dependable resources at your disposal to help you adjust your investment strategy, and the Advantage Administrators mobile app is a great supplement to our friendly and knowledgeable staff. In addition to balance and activity details, our mobile app lets you see a graphical snapshot of the rate of return on your investments and their performance over time. You can also analyze your asset mix and allocations with easy-to-read graphs so that you can make informed decisions about what’s best for you.
TAKE A HANDS-OFF APPROACH WITH AUTOMATION
The stock market may be known for its volatility, but that doesn’t mean you can’t take advantage of it. While the stock market does go through periods of growth and decline—or bull markets and bear markets, respectively—the good news for you as an investor is that, historically speaking, the market has gone up much more often than it’s gone down. Investments will fluctuate periodically, but typically, the good years more than make up for the bad years in the long run.
If all of this sounds good to you, automation can simplify things. At Advantage Administrators, we make automation easy. To sign up for automatic sweeps from your HSA’s cash account to your investment account, simply:
Click the Manage Investments button on the left side of the Summary page; and
Select Update next to Auto-Transfers to or from an Investment Account.
Now you can enter the dollar amount (above the noted minimum) you’d like to set as a cash threshold balance. Once the balance in your HSA’s cash account reaches that threshold, money will automatically sweep from your cash account to your investment account. You can change this amount at any time.
SAVE EARLY, SAVE OFTEN
The fact of the matter is that an HSA is your best option for planning a comfortable retirement. The tax advantages of having an HSA are unparalleled. What’s more, if you leave the money in your accounts to grow and pay for your eligible medical expenses out of pocket, you can reimburse yourself tax-free in retirement and use the money for whatever you want. You’ll want to make sure you save your receipts, though—you’ll need them if you’re ever audited by the IRS. But even if you use your HSA to pay for your qualified medical expenses as you incur them, you can still withdraw funds for non-eligible expenses in retirement without being penalized. Once you reach age 65, the 20% penalty for withdrawals for non-eligible expenses is lifted.
It’s important to note, though, that leaving your HSA funds alone to cover your healthcare expenses in retirement may be the best option. While many expect their household expenses to go down once they retire, the opposite is often true instead—and healthcare expenses are largely to blame. The average 65-year-old is expected to need over $200,000.00 for medical care alone once they stop working, which makes it more important than ever to save early and often for your golden years.