“Whether you save or spend the contributions, an H.S.A. enables you to avoid taxes on income today,” the report explained.
For those who have the means, saving and investing H.S.A. contributions for the long term and covering current health expenses out of pocket can significantly increase wealth later in life, as found by Vanguard.
Individuals aged 55 or older can contribute an additional $1,000 to an H.S.A. above the annual limits set by the Internal Revenue Service, which are $3,850 for a single person and $7,750 for families in 2023, according to Sara Taylor, senior director of employee spending accounts at WTW, a benefits consultant.
“The truth is that most people need more medical care, and it can be costly,” she said.
Upon enrolling in Medicare, the federal health plan for older Americans, it is not possible to continue contributing to an H.S.A. However, the money accumulated can be spent tax-free on medical needs, including Medicare premiums and out-of-pocket costs, stated Ms. Taylor. (Premiums for supplemental Medigap policies, however, are not H.S.A. eligible.) Once you reach the age of 65, you can also withdraw H.S.A. funds for expenses unrelated to health care. Ordinary income tax will be applied, but no penalty will be owed.
Here are some common questions and answers about health savings accounts:
What can I purchase with my H.S.A.?
You can use your savings for various medical and health expenses, such as doctor visits, hospital stays, and vision and dental care. During the pandemic, the government expanded the list of eligible expenses to include tampons and pads, as well as over-the-counter medicine like pain relief and allergy drugs. For a complete list of eligible health expenses, refer to I.R.S. Publication 502.
