“Hey Dad, should I put money in the HSA at work?”

If you are eligible, you absolutely should, kids:

Nobody thinks about retirement during those early days, when they are just starting out in their career. They’re too excited thinking about that first paycheck, buying a car, getting their own place, and living for the weekend.

It’s the Wednesday of your first full week on the job and the company has scheduled an HR session with all of the new hires, to discuss all of the benefits. As the HR representative transitions to slide 53 of the PowerPoint presentation, a sudden hush comes over the room, that signifies, “nobody has a clue how to make sense of all this information”:

·        What healthcare plan should I select? HMO, PPO, deductibles, there are so many things to consider.

·        Should I contribute to a 401k. If so, how much?

·        What investment options do I have to choose from in the 401k? How will I know which one(s) to choose?

·        Do I need additional life insurance, over and above what the company offers?

·        What is a Flexible Spending Account (FSA) and a Health Savings Account (HSA)? How do I decide which is best for me?

·        Vision Coverage? Dental Coverage? Disability Coverage?

You walk out of that room, dazed and confused, with a 3-inch stack of paper in your hands, thinking to yourself, “how am I going to figure all of this stuff out?” What happens next is the people that you consult with only know just enough to get you started. Which means, unfortunately, that some of the most advantageous benefits available to you get left on the table.  Or those benefits get selected by you without any real strategy on how to benefit from your selection.  This is usually the case with the HSA.

A Health Savings Account (HSA) is a savings account that lets you save money, pretax, for qualified medical expenses. Here are some of the basic benefits of the HSA for you to think about:

·        The HSA is funded with pretax dollars, so it lowers your taxable income

·        HSA funds can be used to pay coinsurance, copays, and deductibles, all tax-free

·        The interest earned on the money in your HSA account is tax-free

·        All unused HSA funds roll over to the next year

·        You can invest a portion of your HSA balance in mutual funds, stocks, and bonds

·        You can save all of your HSA for retirement, which some people are doing now

·        There is no time limit for being reimbursed for qualified medical expenses through your HSA. Be sure to keep your receipts and proof of payment for reimbursement

By saving your HSA until retirement, you can use those funds to pay your Medicare Part B and Part D premiums, tax free!  Additionally, at age 65, you can use your HSA just like a 401k. However, just like a 401k, you will have to pay taxes on the HSA money if it is not used for qualified medical expenses.

There are specific guidelines, qualifications and restrictions associated with the HSA.  Be sure to take the time to talk to your Human Resources Department or a Certified Financial Planner (CFP) to make sure that you qualify for an HSA and get help with understanding all the ways the program can benefit you.

It’s hard for a 25-year-old to think about Medicare and retirement at this stage of their life, but trust me, if you take full advantage of the HSA, the “future you” will thank you for it.

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