“Regardless of whether contributions are saved or spent, an HSA allows income to escape taxation today,” the report says.
And for people who can afford it, long-term saving and investing HSA contributions and paying ongoing health care costs out of pocket can significantly increase wealth later in life, Vanguard found.
People age 55 and older can contribute an additional $1,000 to an HSA in 2023, above the Internal Revenue Service’s annual limits of $3,850 for a single individual and $7,750 for families in 2023, Sara said Taylor, senior director of employee expense accounts at WTW, a benefits consultant.
“The reality is that most people need more medical care, and it can be expensive,” she said.
Once you’re enrolled in Medicare, the federal health insurance plan for older Americans, you can’t contribute further to an HSA — but you can spend the accumulated money tax-free on medical needs, including Medicare premiums and deductibles, Ms. Taylor said. (However, premiums for additional Medigap insurance are not HSA-eligible.) Once you reach age 65, you can also withdraw HSA funds for expenses unrelated to health care. You pay ordinary income tax but don’t owe any penalty.
Here are some questions and answers about the health savings account:
What can I buy with my HSA?
You can spend your savings on a variety of medical and health expenses, including doctor visits, hospital stays, and vision and dental care. During the pandemic, the government expanded the list of eligible expenses to include tampons and pads, as well as non-prescription medications such as pain and allergy medications. For a complete list of eligible health care expenses, see IRS Publication 502.