More American families now have tax-advantaged Health Savings Accounts. Even though more American’s are purchasing Long-Term Care Insurance in their 40s and 50s, few are aware they can use the pre-tax money in these accounts to reimburse themselves for the cost of the premiums.
These pre-tax accounts, unlike flex plans, stay with the employee forever. It is their money which can be used for any type of health-related expense. Health Savings Accounts have become more common as more employers are offering these plans. Many people already use this tax-free money to pay for the cost of Long-Term Care Insurance. This makes what is already affordable an even bigger value for many people. However, some people have not heard this money-saving opportunity.
Every year the amount of money eligible to go into these plans increase. See this chart for 2019 and 2020.
Do you have an active account now? If not when your employer’s open enrollment for benefits you may want to consider a health plan which includes an option with a Health Savings Account. You are eligible to participate in a Health Savings Account (HSA) when you enroll in a high-deductible health plan (HDHP) and meet other requirements.
HDHPs typically have a higher annual deductible and out-of-pocket maximums with a lower monthly premium. You must first satisfy the annual deductible before the plan pays for a portion of covered services, known as coinsurance. If you don’t use all the money in the account it stays in your account and earns interest or can be invested like an IRA. Don’t confuse these accounts with FSA’s, flexible savings accounts. Remember, those accounts cannot be used to pay for Long-Term Care Insurance Premiums and you must use all the money by the end of each year.
Some companies may make employer contributions to your HSA. This is free money to use toward doctor visits, prescriptions, and even a portion of your Long-Term Care Insurance premiums.
HSA funds roll over year to year and can be taken with you if you retire or leave the company. If you are no longer enrolled in an HDHP, you cannot make personal contributions to your account.
Personal contributions via payroll deduction are contributed to your account pre-tax. This lowers your taxable income and allows you to set aside money for health care expenses without being taxed on the income. Any interest earned on the account is also tax-deferred. If the money comes out for a qualified expense, like for healthcare for toward Long-Term Care Insurance premiums, it remains tax-free.
Safeguard Retirement Funds with Pre-Tax Money.
With more people planning for the financial costs and burdens of aging, affordable Long-Term Care Insurance has become a big part of pre-retirement planning. These premiums are very affordable, especially if you are in good health. You add the ability to use pre-tax money and the value becomes even bigger.
People require long-term care services due to illness, accident, or the impact of aging. People require care at all ages, however, the risk of needing extended care increases with age and becomes the biggest involuntary risk to your income and savings when you retire.
Long-Term Care Insurance provides you with access to your choice of quality care in the setting you desire without placing an undue burden on your family members.
Health Savings Account Advantages
Contributions to the HSA are 100% deductible (up to the legal limit) — just like an IRA if you are self-employed.
- If you’re an employee the money you contribute is deducted “pre-tax” – so you are not taxed on that amount. Your employer can also make contributions on your behalf, and the contribution is not included in your gross income.
- Withdrawals to pay qualified medical expenses, including dental and vision, drugs and Long-Term Care Insurance premiums are never taxed.
- Interest earnings accumulate tax-deferred, and if used to pay qualified medical expenses, are tax-free.
- You keep the money in your account and the account is portable if you leave your employer or retire.
- Others can contribute to your HSA. Contributions can come from various sources, including you, your employer, a relative and anyone else who wants to add to your HSA.
Qualified Medical Expenses
Examples of qualified medical expenses include (but are not limited to):
- Alcoholism treatment
- Ambulance services
- Contact lens supplies
- Dental treatments
- Diagnostic services
- Doctor's fees
- Eye exams, glasses, and surgery
- Fertility services
- Guide dogs
- Hearing aids and batteries
- Hospital services
- Lab Fees
- Long-Term Care Insurance premiums
- Prescription medications
- Nursing services
- Psychiatric care
- Telephone equipment for the visually or hearing impaired
- Therapy or counseling
Remember, unlike flexible spending accounts, you don't have to "use it or lose it" with an HSA each year. In fact, more than three-quarters of HSA account holders withdraw less than they contribute, and roughly a quarter of people don't touch any money from their accounts. This means this pre-tax money is growing and working for you.
Once you retire your health savings account continues to work for you. HSA distributions can pay for Medicarepremiums for Part B, a MedicareAdvantage plan (Part C), a prescription drug plan (Part D), as well as paying for your Long-Term Care Insurance. This money can also be used for Medicareexpenses such as copayments and deductibles if you have any (depending on the MedicareSupplement you choose).
Use your Health Savings Account to help you plan for long-term care. This way you can address the financial costs and burdens of aging and do so even more affordable.
If you are in your 40s or 50s you are at the prime age for having a Long-Term Care Insurance policy in place. High-income workers who are younger often will obtain coverage younger and you limited pay options. This means you pay a higher premium for ten years and have a fully paid policy.
If you own a C Corporation 100% of the premium is tax-deductible. Other types of companies like S corporations and LLC’s also have tax advantages in addition to the HSA option.
Start your research by finding the current cost of care in your state by using the LTC News Map by clicking here.
Always use an experienced Long-Term Care Insurance specialist. Find one by clicking here.