Despite the stock market’s recovery from 2022’s market rout, insecurity about retirement is at record levels this year.

Multiple surveys  show more and more American workers fear they will never be able to retire. Those who plan on eventually hanging up their boots feel they must stay on the field longer. One study from the Employee Benefit Research Institute (EBRI) shows the portion of employees who plan to delay retirement grew to 33% in 2023, up from 29% last year and 26% in 2021.

Despite the gloomy mood about post-work life, the coming year will positively upgrade the retirement prepping toolbox.

In 2024, the HSA contribution ceiling will be lifted. Individuals can soon deposit up to $4,150 and families up to $8,300 (up from $3,850 and $7,750, respectively, in 2023). Seniors will receive a bonus – those over 55 can add on an extra $1,000.

HSAs present a unique investing opportunity for Americans. However, too many people pass them over. Many do not take full advantage of what HSAs can really do to both guarantee medical emergency payments and prepare for retirement prosperity.

The ideal HSA strategy combines both of these priorities. Financial advisors discuss how to optimize this unique investment vehicle and ensure it can support one’s health while also building one’s well over a lifetime.

Best in Show

HSAs have many stand-out perks over other retirement funds and are considered one of the top 401(k) alternatives.

Prominent finfluencer Blake Hilgemann claims HSAs are at least 17% better than 401(k)s. He says that by combining the income tax saved on withdrawals with an HSA (at least 10%) with an additional waived 7.65% payroll tax. By this calculation, employees come out at least 17.65% ahead.

Blake isn’t alone in his fondness for the accounts. Multiple advisors interviewed by Wealthtender referred to HSAs as their favorite savings vehicle.

Their unique triple-tax advantaged properties. HSA funds can carry over indefinitely with the triple tax-free benefit of funds going in tax-free, growing tax-free, and coming out tax-free for qualified medical expenses.

Use It or Lose It?

“One of the problems with people underutilizing HSAs is in the name. We treat it as a “savings” account instead of an investing account,” Freeman Linde CFP, author and podcast host at RetireMentorship. “We contribute $1,000, leave it in cash, and then max out a Roth IRA and invest it in funds. We are leaving money on the table by not maxing out and investing our HSA, which is far superior to a Roth or 401(k).”

Another issue is needless withdrawals.

“All too often I see people who contribute to an HSA each year, but they either forget to actually invest the contributions and instead leave it in cash, or they withdraw those funds to pay for medical expenses,” says Kevin Burkle, CFP, Founder of HCP Wealth Planning. “This doesn’t allow the contributions to take advantage of compounding and tax-free growth. “

Entry Fee?

A HSA needs to be set up through a qualified trustee (such as a bank, insurance company, etc.). There are a number of best trustees, including Fidelity, HealthEquity, and others.

However, to open an account with the trustee, an individual must meet the criteria set by the Internal Revenue Service (IRS). According to the IRS guidelines from last year, HSA holders must be covered by a qualified high deductible health plan (HDHP), cannot be enrolled in Medicare, and must not be dependent on someone else’s tax return.

Statistics show that HDHP participation rates have risen dramatically over the past decade. In 2012, around a third of all American private-sector workers were enrolled in these programs, but by 2021, that portion had reached 55%. However, there is great geographical disparity across the nation, with 76% of workers in Maine having an HDHP, compared with only 12% in Hawaii.

One factor that explains this is getting eligible for the accounts comes at a steep cost.

“HSAs are tied to HDHPs and these plans come with higher out-of-pocket costs,” says Greenberg. “This might not be suitable for everyone, especially those who expect frequent medical expenses.”

Claim Back

One best practice here is to claim back out-of-pocket expenses through the HSA.

“Recognize that you can retroactively reimburse yourself for eligible expenses, so as long as you have the money to pay medical bills outside your HSA, use it,” says Kelley C. Long, CPA, CFP and founder of Financial Bliss with Kelley Long podcast.

“That way, your HSA can continue to grow tax-free… then if you need the cash for something else later, you can withdraw it,” she adds. “Just be sure to keep meticulous records, including receipts and Explanation of Benefits forms in case the IRS requests proof.”

While HSAs can be a booster to retirement savings, it requires careful planning to perform well over the long run. It can be tempting to never withdraw it for growing one’s nest egg, yet health one’s nest egg shouldn’t be incubated to the detriment of one’s present health.

Doug Greenberg, President of Pacific Northwest Advisory, reminds clients that if they cannot afford medical expenses out of pocket, health must come first. “Always prioritize necessary medical treatments and medications, even if it means withdrawing from your HSA,” he says.

Wealth and health are two pillars of a satisfying, successful, and fulfilling life. HSA combines preparation for both, and with the right approach, more Americans can benefit from and be more secure about their future.

This article was produced and syndicated by Wealth of Geeks. 

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.