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Emergency Fund for Health Care Needs

Emergency Fund for Health Care Needs

| May 14, 2019

According to the Fidelity Retiree Health Care Cost Estimate1, the average couple retiring today needs $285,000 to cover the cost of health care in retirement. It is so important that you plan for this expense now and not wait until it is too late.  

One great way to sock some money away specifically for health care is through a health savings account (HSA). The HSA is a tax-advantaged savings account that works alongside a high-deductible health plan and is intended to reimburse medical expenses as needed.

Why we like HSA plans:

  1. Tax Benefits
  • You’re not taxed when you put money into your HSA. HSA contributions come out of your paycheck through pretax payroll deductions. In some instances you can also make contributions personally to an HSA as long as your plan is designated as a HDHP (high deductible health plan).
  • HSA money grows tax-free like an IRA. Tax-deferred growth and tax-free withdrawals make the HSA a nice addition to your 401(k) and IRA.
  • No taxes or penalties when you use the money to pay for medical expenses. As long as you use it for qualified medical expenses, you won’t be taxed on the contributions or any earnings. 


  1. It’s Not A Use It or Lose It Account

Your HSA balance rolls over year to year. You can max out your HSA contributions every year and stockpile as much money as you can for retirement medical needs down the road.


  1. HSAs Are Portable

If you get a new job or change health plans, your HSA comes with you. You can roll the account into your new employer’s HSA or leave it alone, your choice.


  1. No Required Minimum Distributions (RMDs)

Unlike with an IRA that requires you to take distributions when you reach age 70.5, the HSA does not require distributions.

So, you may be saying this all sounds great, how do I get started? First, you need to find out if your employer offers a high deductible health plan. Next, you need to determine how much you can afford to put away for health care. Similar to a Roth IRA or 401(k), there are limits to how much you can contribute each year. A good rule of thumb is to try to save at least the amount of your deductible each year, that way it’s there if you need it and if not it rolls over and helps you build up your savings.

The HSA is a great way to invest some additional money, earmarked for health care, and have it grow tax-free to provide you with funds you can use to cover medical expenses during your retirement years. If you have questions about the plan or want us to take a look at your company provided benefits, just give us a call.


  1. Fidelity Benefits Consulting Estimate, 2019.