Supplemental plans ease out-of-pocket costs; HSAs give triple tax savings
Bad medicine. It’s what many of us think about the rhetoric surrounding the health care debate. Depending on the hour and the headline, the health care pendulum swings from thriving to code blue as quickly as you change cable news channels.
Despite the ambiguity, there are some health care fundamentals that remain related to retirement. Bruce Glenn, Inifinitas advisor, shares the basics of Medicare and HSAs – health care vitals that hold true even in uncertain political environments.
Closing the gap
In general, Medicare is the federal health care program for Americans 65 or older. For many of the 60 million people it covers, though, just having Medicare isn’t enough. In case of a catastrophic health event, the out-of-pocket costs not covered could drain the retirement funds you’ve worked so hard to save.
That’s where gap policies come in. Medicare Advantage and other supplemental plans are the bridge between what Medicare covers and what you’d pay out-of-pocket.
“Most retirees want assurance that high out-of-pocket costs from a major health problem will be taken care of,” Glenn said. “Medicare supplement policies do just that.”
For those who want to retire before Medicare age, Glenn advises that they weigh their health care options carefully.
“You’re only eligible for Medicare when you turn 65. If you retire before that and don’t have a group health plan, you’re responsible for getting your own coverage,” Glenn said. “COBRA or a policy from the health care exchange are two ways to secure insurance until you reach Medicare age.”
Glenn encourages those nearing retirement to meet with their advisors to ensure their estimated health care costs are factored in to their financial goals.
Triple tax savings
Health Savings Accounts are medical savings accounts that have required you to be enrolled in a high-deductible health plan. Once you’re on Medicare, though, you can still use HSA funds to pay health care expenses.
Glenn said HSAs are popular because they ease your tax burden in three ways:
- Money you put in an HSA is tax-deductible
- What you deposit in the HSA grows tax-free
- You aren’t taxed when you take the money out, as long as it’s used for health care expenses like prescriptions, doctor’s visits or lab work
Currently, individuals can contribute up to $3,400 a year to an HSA or $4,400 if you’re 55 or older. Families can allocate up to $6,750 or $7,750 for those over age 55.
In 2018, the HSA contribution levels climb to $3,450 for individuals and $4,450 for those age 55 and older. Next year’s limit for families is $6,900 or $7,900 for those over age 55.
If your company matches 401k contributions and you have an HSA, you may be unsure where to put your money first. Glenn recommends starting with your 401k – up to the point of your employer match. Then he suggests contributing the max amount to your HSA. Finally, if you still have funds to allocate after the first two steps, Glenn recommends contributing as much as you can to your 401k up to the $18,000 limit for individuals or $24,000 for those 50 and older.
It’s uncertain what impact new legislation may have on health care vitals like Medicare or HSAs. But Glenn offers a clear prognosis for a clean bill of retirement health: simply stay the course.
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