The IRS released new inflation-adjusted contribution limits for health savings accounts (HSAs) beginning in 2023, resulting in individuals being able to save more for their healthcare in retirement, reports Smart Asset.
Current estimates are that at the age of 65, a retired couple will need approximately $200,000 just in healthcare savings, more than what most Americans currently have in their entire savings. Concerns around healthcare are some of the most prominent for retirees, with two out of three Americans concerned about rising healthcare costs in retirement.
New contribution limits for HSAs, which allow for payment of qualified medical expenses using pre-tax contributed money, have been raised from $3,650 to $3,580 for high-deductible, self-only plans. Plans qualifying as high-deductible are those with an annual deductible greater than $1,500 for self-only or $3,000 for families, and typically have an HSA offered with them.
“Many people primarily consider HSAs as a way to save for health expenses, similar to using a flexible spending account (FSA) for lower-deductible plans. However, HSAs are often a powerful yet underutilized savings tool that extends tax benefits far into retirement,” writes Christine Williams, personal finance expert at Smart Asset.
HSAs come with a bevy of benefits, including contributions not being subject to federal income tax, the ability of contributions to earn tax-free interest, and it can be invested with no annual expiration for the funds. The ability to contribute funds to an HSA can help lower the tax burden for individuals come tax season. Building a bigger cushion for healthcare needs in retirement can open up room for allocating more to retirement savings and investments.
“HSAs are powerful retirement tools that are often underutilized, despite their tax advantages and growing concern for rising healthcare costs,” explains Williams. “HSAs are best suited for retirement investment savings, but this may mean that you will pay out-of-pocket for medical expenses while contributing to one. If in doubt, an expert can help you determine if an HSA is a good choice for you.”
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For more news, information, and strategy, visit the Retirement Income Channel.