Kiplinger\'s Personal Finance - 04.2020

(Tina Sui) #1
High-deductible health
plans have a well-deserved
reputation as a way for em-
ployers to pass along some
of the burden of spiraling
health costs to you. They
typically come with lower
premiums than traditional
insurance plans but require
you to pay for more of your
medical costs before your
insurance kicks in.
Such plans have become
more prevalent in recent
years. Last year, 30% of
people with employer-
sponsored health insurance
enrolled in high-deductible
plans, compared with just 8%
a decade earlier, according
to the Kaiser Family Foun-
dation. For some people, a
high-deductible plan may
be the only choice offered
by their employer.

But high-deductible
plans also give you access
to a health savings account.
And an HSA has secret
powers that most people
haven’t begun to tap. An
HSA isn’t just a short-term,
tax-friendly way to pay for
current and future medical
bills; it’s also a vehicle for
supercharging your retire-
ment savings.
For Marianela Collado, a
certified financial planner
in Weston, Fla., switching
to a high-deductible plan
and opening an HSA five
years ago was an easy de-
cision. Marianela, her
husband, Edgar, and their
three boys were healthy
and rarely visited the doctor
aside from annual check-
ups. The family began fun-
neling cash into their HSA

and covering current medi-
cal expenses out of pocket
so the account could con-
tinue to grow.
Today, Marianela and
Edgar, who are both in their
early forties, contribute the
maximum to their HSA
each year, investing most
of the money in a portfolio
of growth-oriented stocks.
“We hope to leave the ac-
count untapped for 20 to
30 years so it grows as much
as possible,” Marianela says.
Then, she says, they can use
that money for medical ex-
penses during retirement.

Learn the basics. A health
savings account offers a
tax-saving trifecta. First,
contributions to an HSA
can be made pretax to an
employer-sponsored HSA
plan—or they can be de-
ducted (even if you don’t
itemize) if you’re saving in
an account on your own.
Second, money in the ac-

Health savings accounts help defray the cost of high-deductible
health plans. They’re also a powerful way to invest for retirement.
BY NELLIE S. HUANG and KAITLIN PITSKER

count grows tax-deferred.
And third, you can take tax-
free withdrawals at any
time to pay for qualified
medical expenses, including
deductibles, co-payments,
prescription drug costs, and
out-of-pocket dental and vi-
sion expenses. (If you with-
draw the funds for nonqual-
ified expenses before age
65, you’ll pay a 20% penalty,
plus income tax on the
amount you take out.)
To contribute to an HSA,
you must be enrolled in a
high-deductible health plan
with an annual deductible
of at least $1,400 for indi-
vidual coverage or $2,800
for family coverage in 2020.
The plan must also have a
limit on out-of-pocket medi-
cal expenses including de-
ductibles, co-payments and
other amounts (but not pre-
miums). In 2020, the out-
of-pocket limit is $6,900
for individual coverage and
$13,800 for family coverage.
If your health plan meets
those requirements, you can
contribute up to $3,550 to
an HSA in 2020 if you have
individual coverage, or up
to $7,100 if you have family
coverage, including any cash
your employer has kicked
in. If you are 55 or older in
2020, you can contribute an
additional $1,000 in catch-
up contributions.
A couple of other impor-
tant details: Unlike f lexible
spending accounts, which
generally must be depleted
by year-end (or March 15,
depending on your em-
ployer), HSA funds don’t
have a use-it-or-lose-it rule.
That means you can build
up a stash of tax-free money
for major medical bills or
for medical expenses much

MONEY


44 KIPLINGER’S PERSONAL FINANCE^ 04/2020 HAND LETTERING BY MARY KATE McDEVITT

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