Aging is inevitable. There are things we can do to stay healthy, but let’s face it: Sometime in the future, our hearing, sight, and even the quality of our teeth will start to diminish.
That knowledge probably makes you want to set aside funds now for your (basically guaranteed) health expenses in the future. A Health Savings Account (HSA) is the perfect account for that purpose.
An HSA has triple tax benefits. Contributions are pre-tax, the account value grows tax-deferred, and “qualified” distributions—those used for medical expenses—can be withdrawn free of income taxes.
If you have a high-deductible medical plan, you may qualify for a health savings account. The IRS allows individuals to put aside $3,400 and families to put aside $6,750 in 2017. The year you turn age 55, you can add another $1,000 as a “catch-up” contribution (even if you’ve always maxed out your account).
Even if you don’t need to use your HSA for out-of-pocket medical expenses now, you may want to let your balance grow for the future to cover these common medical costs:
When your hearing goes, don’t you want the best hearing aids available? You’ll likely want the smallest, least noticeable model, where you can adjust the volume with your phone. What if there was an implant or surgery available in the future that could give you close to perfect hearing, but you had to pay for it out of pocket?
There are bound to be many improvements in technology in the next 20 years, and you may be glad you have the extra money from an HSA to purchase the best option.
Do you wear glasses now? I do. My vision has slowly gotten worse since I turned 40. I expect to need eye care for the rest of my life. An HSA can pay for glasses and contacts in retirement if I let my account grow in the present.
It would be great to have excellent vision into your 80s (better to see the grandchildren with!). If you needed cataract surgery later in life, you may want to have some funds set aside for a special lens to help you see perfectly. These options are available even now, but often are out-of-pocket expenses that aren’t covered by insurance. But they may be “qualified medical expense” under the HSA rules.
- Dental care
What about your teeth? You can brush and floss now to prevent future dental problems, but and if/when they do arise, the cost of dental treatment counts as a qualified tax-free withdrawal from your HSA. Besides, you may need to pay for dental care out of pocket in retirement if you don’t have dental insurance.
According to Medicare.gov, “Medicare doesn’t cover most dental care, dental procedures, or supplies, like cleanings, fillings, tooth extractions, dentures, dental plates, or other dental devices. Medicare Part A (Hospital Insurance) will pay for certain dental services that you get when you’re in a hospital. Part A can pay for if you need to have emergency or complicated dental procedures, even though the dental care isn’t covered.”
Even if you have dental insurance in retirement, many plans don’t cover 100% of your costs. For example, some plans cover only 80% of basic dental services such as root canals and 50% of major dental services such as crowns and bridges (which can be pricey).
It would be smart to have funds set aside now for dental procedures later.
You could reach a point where you aren’t able to move around with ease anymore, and you may need to fix up your house to accommodate your new needs. The IRS considers certain home improvements so you can stay in your current house as “qualified expenses.” This could include installing a ramp, railings, support bars, and other modifications to the house. Your HSA funds could be withdrawn tax-free to cover these expenses.
- Pharmaceuticals or experimental treatments
You could also need expensive prescription drugs in the future. What if you want to use an experimental drug that’s not covered under Medicare? In that case, you’d need to pay out of pocket. If you have funds in your HSA, you are set. Your HSA could save your life!
We can take great care of ourselves and maybe never need any of these things.
My grandfather had good health until he was 90 years old. He walked every day (not even 10,000 steps), drank fresh-squeezed juice, and ate a bowl of blueberries every day. He led a fairly stress-free life, too. He never took medications and only slept in a hospital bed once in his whole life. Other than a hearing aid, he didn’t have many out-of-pocket medical expenses.
He died peacefully in his sleep. What a way to go!
His case is rare, though. You and I will probably have medical expenses in the future. We’re going to need and want money set aside, and an HSA is a great way to do that.
Your pitch-perfect hearing, eagle-eye sight, and gleaming-white smiling future self may thank you for taking this simple step right now.
This was originally posted on my Forbes.com contributor column with the title Why Every 50-Year-Old Should Be Maxing Out An HSA.
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