Rising medical costs and the recent stock-and-bond market volatility may have Americans considering investing in health savings accounts, especially with open enrollment season getting underway. HSAs, in which people with high-deductible insurance plans save for qualified medical expenses, have one thing that no other investment has: a triple tax benefit. Contributions are tax deductible; investment growth, interest and dividends are tax-exempt and there are no levies on any withdrawals for qualified medical expenses. Yet to get the most out of that tax savings, you’ll have to put some of the money into longer-term investments, so it can grow tax free and ideally be used in retirement. The money in your account rolls over year after year, unlike flexible-spending accounts. You can also get reimbursed years later for qualified expenses incurred now, as long as you hang on to the receipts. “It’s another retirement bucket,” said certified financial planner Candace Lee, vice president at Glassman Wealth Services in Vienna, Virginia. However, she suggests first maxing out your retirement accounts, such as a 401(k), before maxing out your HSA. You can contribute up to $3,650 for individual coverage and up to $7,300 for family coverage in a 2022 HSA. Next year, that maximum increases to $3,850 in an individual health insurance plan and to $7,750 with a family plan. It’s helpful to have some money saved for future medical expenses, since they are likely to be higher when you are older. A 65-year-couple retiring this year can expect to shell out an average $135,000 in medical and health-care expenses in their retirement, not including long-term care, according to an estimate by Fidelity Investments . That is 5% higher than last year’s estimate. Yet it is not just senior citizens affected by high medical bills. Health-care spending overall has also grown, making up 20% of total U.S. gross domestic product in 2020, compared to just 5% in 1960. That’s why it’s important to also keep money available in an HSA to pay any out-of-pocket costs that you can’t cover with your income. A good rule of thumb is to have the amount of your deductible set aside in cash or fixed income, said CFP Carolyn McClanahan, founder and director of financial planning at Life Planning Partners in Jacksonville, Florida. The average general annual deductible for an HSA-qualified high-deductible health plan in 2021 was $2,454 for single coverage, according to the Kaiser Family Foundation ….
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