The majority of people require medical assistance or healthcare at some point in their life. This likelihood increases as you get older – and the cost of medical treatment can severely erode your retirement fund.

Healthcare insurance should be considered as part of your retirement planning. Having an insurance policy to fall back on in the event you require prolonged medical treatment in your twilight years will help to maintain your purchasing power and protect your family’s inheritance.

Standard medical insurance policies – known as high-deductible health insurance (HDHI) typically have low premiums but a “high-deductible” coverage.

This means you have to pay out of pocket expenses before the insurance policy covers medical expenses. For example, an insurance policy may state that the first $1390 must be paid by the policy owner and anything over that will be covered by insurance.

Another option is to open a health savings account (HSA) which provides you with a tax-advantaged fund to pay for healthcare costs. HSA’s give you the opportunity to save for medical expenses and protect your spending power in retirement.

What is a health savings account (HSA)?

A health savings account is an investment tool that can be provided by your employer or taken out independently. They work in a similar way to 401(k)’s and IRA in that they allow your employer to make contributions and accumulate a store of wealth without being taxed.

HSA’s are not owned by an insurance company or by your employer. You have complete control. However, you are only permitted to make tax-free withdrawals to pay for qualified medical expenses.

There is also a limit on the amount of contributions you can make each year. In 2021, the maximum limit is $3,600 for an individual and $7,200 for a family. Any contributions you make above the annual limit will be taxed at 6%.

How does an HSA work?

An HSA is an account you can deposit money into for the purpose of paying for potential medical expenses.

To qualify for an HSA:

  • you must be under age 65
  • carry an HDHI plan as your only healthcare insurance. You cannot be covered by any other medical insurance.
  • However, having dental, vision, disability and long-term care insurance does not disqualify you from having an HSA.

What are the Benefits of an HSA?

Other than protecting your retirement fund, opening an HSA account enables you to accrue savings by taking advantage of tax-free advantages and accumulating compound returns.

The benefits of an HSA are threefold:

  • You get to deduct contributions up to the current IRS limit
  • The amount you contribute grows tax-free meaning you won’t owe any taxes on the dividends, interest, or capital gains
  • Your employer may contribute to your HSA
  • Any savings that are not used rollover to the following year (some HSA’s pay interest)

There are hundreds of healthcare insurance policies available in the USA. Knowing which companies offer the best policies that best suit your unique circumstances can be extremely time-consuming.

Malibu Wealth Planning has access to the health insurance market and use comparison tools to identify the best value for money HDHI’s. This enables you to find the best deals and plan your future healthcare with confidence. Get in touch today for more information.

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