What AT&T Employees May Not Know About HSAs
With all of the recent changes in Texas this is particularly relevant to Texas residents. Regardless of whether they are insured or not, many Americans report that some of the largest recurring expenses throughout their lifetimes come in the form of health care costs. Many AT&T employees from areas like California can become better prepared for expected and unexpected medical expenses, with a Health Savings Account (HSA).
An HSA is a savings and investment account available to individuals in high-deductible health plans (HDHP), to aid in paying for out-of-pocket medical expenses. In order to qualify for an HSA, you must be under an HDHP with no additional health insurance, and not currently qualifying for Medicare. Additionally, you cannot be claimed as a dependent on anyone else’s tax return.
There’s plenty more to HSAs that people may not be aware of.
Although mainly designed to cover medical needs, HSAs offer multiple other features, such as significant tax advantages, in comparison to other investment accounts, making them an extremely attractive asset for retirement. For such reasons, AT&T employees who qualify for an HSA should take full advantage of it.
You May be Eligible for a Company Match in your HSA
AT&T employees contributing to their HSA through payroll deductions may be eligible for a company match in their HSA. This company match is offered to those enrolled in an AT&T insured High-deductible health plan, such as the Gold, Silver, or Bronze Medical plans. Aside from years of service, the HSA match depends on the level of coverage you are enrolled in; Family coverage, Employee and Spouse/Partner coverage, Employee and Child coverage, or Employee-only coverage.
HSA Contributions are Tax-deductible
Because HSA contributions are made with pre-tax dollars, these can lower the dollar amount of federal and state income taxes you owe. Note that a handful of states do tax HSA contributions, consult your state’s tax laws. In addition, HSA contributions are not subject to FICA taxes, nor do any contributions fall under taxable income.
Per-year HSA limit contributions are $7,200 for those with family coverage, and $3,600 for those with self-only coverage. Those age 55 or older are allowed to make annual “catch-up” contributions for up to $1,000. No limitations on income apply to the amount you can contribute to an HSA account.
You can make contributions to an HSA account until you are age 65, and become eligible for Medicare. This means that you can invest and save in an HSA over the course of many years, to help increase your retirement income, as long as you can leave the money in the account.
HSA Funds can grow Tax-Free
All funds in your HSA grow free of taxes. You do not have to pay taxes on any interest, capital gains, or dividends you earn.
HSA Withdrawals are Tax-Free for Qualified Medical Expenses
You do not owe any taxes on funds withdrawn from an HSA with the purpose of paying for qualified medical expenses. These range from insurance deductibles and hospital bills, to Medicare premiums and long-term care services.
That is an important advantage for HSA accounts over IRAs or Traditional 401(k) accounts, in regard to retirement. You owe income taxes on withdrawals from those accounts regardless of how that money is used.
Health care has historically been one of retirees’ largest expenses, and you should expect the same. A 65-year-old couple going into retirement this year can expect to spend nearly $295,000 on health care costs alone in retirement. An HSA is without a doubt, the best way to pay for health care costs in retirement, compared to withdrawals from other retirement accounts, which would produce taxable income.
The numerous tax advantages of an HSA make it a highly valuable asset for retirement. An HSA offers three main tax advantages: Tax-Deductible contributions, Tax-Free growth, and untaxed withdrawals for qualified medical expenses.
You can absolutely invest in HSA for more than solely medical needs, however, withdrawals used for anything other than qualifying medical expenses will be taxed as ordinary income, just like a Traditional 401(k) or IRA. If you withdraw HSA funds for any other reason before the age of 65, you will be subject to a 20% penalty, in addition to income taxes pertaining to those funds.
HSAs Are Not Subject to RMDs
As is the case with most retirement accounts, you must begin taking Required Minimum Distributions (RMDs) every year, beginning at age 72. With an HSA, you may leave those funds untouched for as long as you would like.
You Don’t Lose it, if You Don’t Use it
Funds in an HSA can be carried forward after every year. Unlike with a Flexible Spending Account (FSA), you won’t lose funds if you don’t use them. Additionally, HSAs are fully portable. As the account owner, you have the freedom to take it with you upon transitioning jobs, or leaving the workforce entirely in your area.
Now that you know what makes an HSA a useful retirement source of income, it is important to recognize how an HSA might not be right for everyone. As already stated, to access an HSA, you must be part of a High-Deductible Health Plan (HDHP). An HDHP makes the most sense for those who are healthy and do not require frequent treatment, or those who have the financial means to afford the high expenses.
The main purpose of an HSA is to assist people in covering medical expenses with a tax break. Thinking of an HSA as an investment tool only makes sense if you are confident you can afford the out-of-pocket costs with other funds. That way, you can allow the account balance to grow, and take full advantage of the tax breaks during retirement.
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