Medicare has been key in helping retirees mitigate healthcare costs, but some may still have to pay substantial sums from their own pockets. One may consider supplementing Medicare benefits with a health savings account (HSA) with this fact in mind.
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HSAs are individual custodial accounts that allow investors to hold the same alternative investment options as self-directed IRAs. However, instead of helping you build your retirement nest egg, HSAs enable you to generate a pool of cash that can specifically help pay for qualified medical expenses (QMEs). You, as the HSA holder, can experience considerable tax advantages in the process.
You may deduct HSA contributions from your income for an immediate tax benefit, just as you may with a Traditional IRA. HSA contributions can make for happier tax returns, but the true beauty of HSA investing lies in making qualified withdrawals. HSA distributions can be 100% tax free, regardless of the HSA holder's age, if they either cover QMEs directly or reimburse the HSA holder for QMEs that have been paid for out of pocket (but only if the QMEs were incurred after the HSA was opened).
In many ways, HSAs combine the most favorable elements of other tax-advantaged plans. You can enjoy recurring annual benefits by making tax-deferred contributions and the long-term benefit of tax-free withdrawals. Essentially, HSAs afford the unique opportunity to cover medical expenses with thousands of dollars that will never be taxed.
This may seem too good to be true. You may think the list of QMEs is full of obscure medical occurrences that you’re unlikely to ever endure, but that’s not the case. Annual physicals, prescriptions drugs, and eye care (exams, contact lenses, glasses) are among the many QMEs that an HSA can cover. You must be enrolled in an HDHP to contribute to an HSA, but your deductible is another QME that your HSA can help with.
Medicare may only go so far once you reach retirement age. Accordingly, you may want to think about whether or not a self-directed HSA could be right for you. For more information about HSAs or alternative IRA assets, please don’t hesitate to contact New Direction Trust Company at 877-742-1270 or send us a message through your client portal at portal.ndtco.com.