Medicare and Health Savings Accounts

[TIMOTHY SEBASTIAN]

I'm new so this might be way off.

I thought HSAs were meant to be withdrawn at retirement as a backup retirement account. That's why people don't have to pay a penalty at 59.5 on them. Why wouldn't an agent tell the client to withdraw the money in the HSA, buy an annuity with it and enroll in a medigap? Is it more economical to let it sit there and pay part B and D premiums with it because they would have to pay income taxes on it at the time of withdraw vs being able to pay premiums tax free?

 

[Travis Price]

Yes.

Money in a HSA has triple tax benefits:

1) Money put in is not taxable.
2) You can invest and grow money tax free.
3) Money spent on qualifying costs is not taxable.

Taking money out to buy an annuity makes it taxable.

There's no PENALTY after 59.5. it's still taxable if not used for the purpose intended. Depending on how long you've been contributing to your HSA, you could have a sizeable chunk of money. Why pay taxes on something you don't have to?

 

[TIMOTHY SEBASTIAN]

Yes.

Money in a HSA has triple tax benefits:

1) Money put in is not taxable.
2) You can invest and grow money tax free.
3) Money spent on qualifying costs is not taxable.

Taking money out to buy an annuity makes it taxable.

There's no PENALTY after 59.5. it's still taxable if not used for the purpose intended.

That's not different from a traditional IRA is it? It becomes taxable when it's withdrawn and it's only purpose is to be used for retirement. I just can't imagine someone paying all that money into an HSA that allows them to withdraw it without penalty and them wanting to let it just sit there after retirement.

 

[Travis Price]

That's not different from a traditional IRA is it? It becomes taxable when it's withdrawn and it's only purpose is to be used for retirement. I just can't imagine someone paying all that money into an HSA that allows them to withdraw it without penalty and them wanting to let it just sit there after retirement.

No.. it's not like an IRA. With an IRA, if you take money out for any reason, it's taxable. If you take money out of an HSA for qualified costs, it's tax free.

It's not just sitting there. As we age, we pay more for health related expenses.

HSA's are not retirement funds, they're for health related expenses that can be in retirement.