Retirement savers who have contributed the maximum to their 401(k) plans don't have to look far for the next big growth opportunity for nest eggs: It's right in their health-care plans.
Say hello to the health savings account, which works in tandem with high-deductible health insurance.
HSAs offer a triple-tax benefit: Assets in them grow free of taxes. Savers can contribute to them on a pretax or tax-deductible basis. Finally, account holders can tap the assets free of taxes, provided the money goes toward qualified medical expenses.
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Used wisely, HSAs are a new tool in retirement planning — and financial advisors can help with that.
"If you're expected to spend $275,000 on health care in retirement, where can you get the most bang for your buck?" said Tom Vipond, sales consultant for TD Ameritrade Self Directed Plan Services.
Here's where you can find the best opportunities for health savings accounts.
Investable assets
This year, individuals in high-deductible health-care plans can sock away up to $3,450 in their HSAs if they have single coverage. Those with family plans can save up to $6,900. Those who are over age 55 can put in an additional $1,000.
Balances in these accounts roll over to the following year.
HSA investors can use their accounts in one of two ways: Either they pull money from the account to cover ongoing health expenses, or they cover those expenses out of pocket and allow the HSA to accumulate over time.
Savers in the latter group have the greatest growth potential and may use those dollars many years later, particularly if they have access to mutual funds and exchange-traded funds.
Consider that 40 percent of HSAs with investments had a balance of more than $10,000, according to Vipond.
Meanwhile, only 4 percent of HSAs with no access to investments had a balance exceeding $10,000.
"Since [HSAs] are a powerful vehicle for investing, we're starting to see a shift in mindset," said Vipond. "You can use it as a way to save for retirement and cover medium- to long-term health-care expenses."
Transferring dollars
Because HSA assets are portable — that is, savers can take the money with them when they change jobs — investors can also move the money to a different custodian so that their advisor has oversight of the account.
There are three ways to transfer assets into an HSA, Vipond said.
First, customers can seek a trustee-to-trustee transfer, in which one custodian wires the assets to another. Savers are allowed an unlimited number of these transactions; they are not rollovers.
Second, account holders may receive a rollover check from their custodian and deposit the money into a new HSA within 60 days. This transaction is permitted once a year.
Finally, investors are permitted a once-in-a-lifetime transfer of savings from an individual retirement account to an HSA. The amount transferred cannot exceed that year's HSA contribution limits: $3,450 for those with individual health-care coverage or $6,900 for family plans, plus $1,000 for those 55 and over.
