An HSA in early retirement can be one of the most impactful financial tools available if you are looking to achieve Financial Independence, Retire Early. The triple tax savings provides flexibility for those looking to retire early. Additionally, an HSA allows you to invest in dividend growth ETFs like SCHD and DGRO or something as simple as the total US stock market with VTI. In this video, I go into detail on how we plan to use an HSA in early retirement.
1) What is an HSA 3:18
2) Tax benefits 11:57
3) Investing with an HSA while working towards early retirement 13:40
4) How to use an HSA in early retirement 18:17
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Early retirement can be a challenging phase in one’s life, especially when it comes to managing healthcare expenses. This is where an HSA or Health Savings Account can come in handy. An HSA is a tax-advantaged savings account that allows you to save money for future healthcare expenses. The account can be used to pay for qualified medical expenses like doctor visits, prescriptions, and other healthcare services.
Here’s how you can use an HSA in early retirement:
1. Understand your HSA
Before you start using your HSA, it’s crucial to understand the terms and conditions related to the account. The IRS has set annual contribution limits, which vary depending on your age and whether you have an individual or family plan. Knowing these limits can help you plan your contributions better.
Furthermore, it’s essential to remember that the HSA funds roll over from year to year, so it’s a long-term investment.
2. Plan your contributions
Once you understand the HSA’s basics, the next step is planning your contributions. Since you’re in early retirement, you’ll likely have a limited income source. Hence building a balance in your HSA could be crucial to managing healthcare expenses in the future.
If you’re not eligible to make contributions because of your retirement status, you can use the funds in your account for eligible expenses. Additionally, there’s no age limit for using your HSA funds.
3. Invest your HSA funds
Unlike traditional savings accounts, HSAs allow you to invest your funds in stocks, mutual funds, and other investment options. This could help your HSA balance grow over time, especially if you’re in early retirement.
However, make sure you understand the investment options available to you and allocate funds according to your risk tolerance.
4. Use HSA funds for medical expenses
As a retiree, you’re likely to have some medical expenses that you will need to pay for out of pocket. For qualifying expenses, use your HSA to pay for those medical bills. Eligible expenses include deductibles, prescriptions, prostheses, and other treatments not covered by your insurance plan.
Remember to keep your receipts as proof of your HSA expenses.
5. Take advantage of HSA catch-up contributions
If you’re 55 or older, you can make catch-up contributions to your HSA. The catch-up contribution limit is $1,000, and it’s designed to help older adults save more for healthcare expenses in retirement.
In conclusion, an HSA can be a valuable financial tool for retirees to pay for healthcare expenses in retirement. By understanding the account’s basics, planning contributions, investing funds, and taking advantage of catch-up contributions, you can use your HSA to manage healthcare expenses in early retirement.
Do you plan to use an HSA in early retirement?
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Im going to enroll in my employers hsa this yr. Im 52 and going to retire at 59. Can i invest outside of this hsa or am i stuck with thier crappy funds? Actually i think fidelity 500 might be one of them?
Jake, love the content! One other piece about the payroll deduction through an employer is you not only get the federal tax deduction, but an HSA is also exempt from FICA as well! One caveat of that is if you contribute to an HSA directly outside your employer, you miss out on that FICA piece.
Jake. Jake Jake Jake Jake Jake. You forgot to mention the best part! Paying for medical expenses out of pocket now (and, with a 2-year-old, I bet you have a lot of them), saving the receipts, and then drawing the money out as reimbursements 30+ years from now! There is no time limit on when you can reimburse yourself for past expenses. Best practice would be pay the clinic with a CC (to get the points, assuming you don't carry a balance), pay the CC off in full, then store the receipts for future use. If you don't want to pull the money out, (and, given, it's an HSA, so why would you), you can set your wife and child up as beneficiaries and leave it to them when you pass.
I'd like to add that you are not limited to your employer's HSA provider. You can open your own HSA account at any brokerage and rollover your existing HSA into there. A good reasons for doing this is If your employer does not match your HSA contributions and the HSA provider have limited funds to choose from and/or they charge management fees.
HSA's are great! Triple tax free investment. My contribution at work reduces my taxable income, investment grows tax free, and when I take it out for healthcare it is tax free.
Super minor correction. You can have and pull from an HSA without a high deductible policy. But you cannot contribute to one without a high deductible policy, and medical expenses when not covered by a compatible policy can't be claimed for a qualified disbursement.
So right now I have a policy, and account. Buts let's say I change jobs in a year and that is no longer available, and have a medical emergency. I cannot pull from the HSA to pay for the current medical emergency as a qualified distribution as I would not longer have a compatible policy. But I could pull from the account and pay the nonqualified penalty, or claim previous medical bills from when I did have a compatible policy.
In this way it is like a glorified savings account. We max out contribution while paying for medical out of pocket. The intent is to save it all for retirement, but in the future if we have a major liquidity crunch, then we can claim our previous medical expenses for disbursement and avoid the penalty. In my mind this is a break glass kind of emergency situation to be used as a last resort… But the option is there.
Currently have my HSA with PayFlex and started to have it auto invest at 50/50 to VFAIX(s&p 500) and VDADX( dividend appreciation) ….sadly unable to buy SCHD or DGRO but started the snow ball there as well
I'm confused now Jake, ive been adding to schd and now dgro as well as vti thinking that was the way to do it in a roth ira but now that you showed your td ameritrade account , im questioning if I should sell the schd and dgro and just keep vti… curveball bro. Help me out pls
thank you so much for making these videos over the years. I have watched your videos a couple years ago and got confident this year to decide to start building my dividend portfolio this year. I'm so excited.
Thanks investing VTI into an HSA feel like printing gold!
Seems like an HSA is the perfect way to bridge the gap for FIRE before Medicare kicks in at 65.
(Although you can't use it for paying Medicare premiums)
Can parents start a HSA for their child and then transfer beneficiaries?
I think i did 5% real estate and 95% VTI into my HSA and I max it out every single year
Wish we had one of these in Canada for non government covered health expenses
Love my HSA, tax free medical expenses. Most people don't use it enough.
Jake, where do you track.your expenses? Dont.you have to have receipt and submit them for withdrawl?
By age of 65 you can use the money for non medical as well but you pay taxes on those
HSA is legit. Employer puts $35 in per pay period. Tax free in, tax free out if used for medical/health expenses. Otherwise it’s a 401k. Can’t get better than that. It kills me when people don’t invest it.
I dunno, being that you have a kid, i wouldn't count on that "we don't plan on using this for many years" lol. Kids always get into something
As someone who spent years researching the best tax advantage accounts, I have yet to find any better than a HSA.
First!