better investing options
by switching providers.
To compare fees and ex-
penses along with investing
options, visit HSASearch
.com. The Collados, for ex-
ample, will be re-shopping
their HSA provider soon.
Their current provider has
good investing options but
requires that $5,000 remain
in the checking portion of
the account before they may
invest. Because the family
doesn’t plan to use the
money for many years and
could cover their full de-
ductible from other sources,
they would prefer to invest
all of their HSA funds.Maximizing HSA benefits. You
can use the money in your
HSA tax-free for eligible
medical expenses at any
time. But you’ll get the most
bang for your HSA buck by
using other cash for current
medical expenses and al-
lowing money in your HSA
to grow tax-free.
Save receipts for any out-
of-pocket medical expenses
that you incur after opening
the account. Many health
plans and HSA administra-
tors provide online tools to
help you track your quali-
fied expenses and record
how you paid those bills,
making it easier for you toreimburse yourself later.
An HSA can also play a
key role in your retirement
strategy. You’ll face a stiff
penalty (20%, plus income
taxes) if you tap your HSA
for non-medical expenses
before age 65. But after age
65, you’ll only have to pay
taxes on the withdrawal
if you use it for anything
other than eligible medical
expenses. Your best bet,
though, is to use the money
for medical expenses. You
can use HSA funds to pay
for medical costs that Medi-
care doesn’t cover, as well as
monthly premiums for Medi-
care Part B and Part D andIf you have enough money
to cover your out-of-pocket
expenses, use a health sav-
ings account to supercharge
your retirement savings.
But here’s the rub: Not all
health savings accounts
come with an investing op-
tion. The big HSA providers,including Bank of America
and the HSA Authority, typ-
ically do. But HSAs offered
through community banks
and credit unions don’t,
according to HSA consult-
ing firm Devenir. Those
accounts are set up primar-
ily for spending.If your HSA doesn’t have
an investment vehicle, don’t
worry. You can open a sec-
ond HSA at a provider that
does and add money to that
account in tandem with your
workplace contributions.
Another alternative is to
save only in your workplaceMedicare Advantage plans.
Withdrawals for those costs
will be tax- and penalty-
free. You can also pay a
portion of long-term-care
insurance premiums. The
amount you can withdraw
tax-free depends on your age.
Again, you can’t contrib-
ute to an HSA after you’re
covered under Medicare.
But be aware of the tax trap
if you delay signing up for
Medicare: When you enroll
in Part A, you get up to six
months of retroactive cov-
erage. To avoid a tax pen-
alty, stop making HSA
contributions at least six
months before you enroll.HSA but periodically shift
money to your investing
HSA. “These accounts are
portable, unlike money in a
401(k),” says Devenir presi-
dent Eric Remjeski. The
IRS limits taxpayers to one
rollover per year from one
health savings account to
another. But some plans
allow direct “trustee to
trustee” transfers, which
have no annual transaction
limit, says Greg Will, a cer-
tified public accountant and
financial planner in Freder-
ick, Md., because techni-
cally, the IRS doesn’t view
direct transfers as rollovers.
The tax benefits aren’t
exactly the same between
employer-sponsored HSAs
and an HSA you open up
on the side. For one thing,
contributions from your
paycheck into a workplace
account aren’t taxed for
Social Security and Medi-
care, which saves you 7.65%,MONEY
46 KIPLINGER’S PERSONAL FINANCE^ 04/2020