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 you forever. It is your money that 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 more significant value for many people. However, some people have not heard about this money-saving opportunity.
2021 HSA Contribution Limits
Every year the amount of money eligible to go into these plans increases. See this chart for amounts through 2021.
Do you have an active account now? If not, when your employer's open enrollment for benefits comes out, 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.
Flexible Accounts are Not HSAs
Don't confuse these accounts with FSA's, flexible savings accounts. Remember, Flexible Savings 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 go into your account pre-tax. Since the money goes into the account untaxed, it lowers your taxable income and allows you to set aside money for health care expenses without being taxed as income.
Any interest earned on the account is also tax-deferred. If the money comes out for a qualified expense, it remains tax-free for health care or toward Long-Term Care Insurance premiums.
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, the value becomes even more significant.
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 most significant 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 gets deposited into the account “pre-tax,” – so you are not taxed on that amount. Your employer can also make contributions on your behalf, and the contribution and that amount 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.
After Age 65 - Now What?
Once you turn 65, your Health Savings Account still works for you - remember - it is YOUR pre-tax money - growing tax-deferred.
Once you turn age 65, you can use the money in the HSA anyway you wish. You are no longer required to use the HSA funds only for qualified health care expenses and Long-Term Care Insurance premiums. If you use the money for other things, you would just pay the income tax on the funds like you would normally from any type of qualified retirement account.
However, depending on the amount of money in the account, many people continue to use the money for health-related expenses. The money would come out tax-free.
Remember, 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), and 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 the financial costs and burdens of aging. Your health, body, and mind will change in the decades ahead, often leading you to require long-term care services. With an affordable LTC Insurance policy, you can safeguard your savings and income and ease the stress otherwise placed on your family. Plus, by using pre-tax money from an HSA, you can plan even more economically.
If you are in your 40s or 50s, you are at the prime age for having a Long-Term Care Insurance policy in place. Younger high-income workers who obtain coverage can utilize limited payment options allowing them to have a fully paid policy before they retire.
If you own a C Corporation, 100% of the premium is tax-deductible. Other types of companies, like S corporations and LLCs also have tax advantages in addition to the HSA option.
Research Tools Available on LTC NEWS
The cost of long-term care services can easily change a family's lifestyle and adversely impact income, assets, and legacy. You can find the current and future cost of care where you live by using the LTC NEWS Cost of Care Calculator.
The time to obtain LTC Insurance coverage is before retirement, ideally in your 40s or 50s, when you still enjoy good health and can take advantage of low premiums and health discounts.
There are many options and several types of available plans. You can easily navigate the choices available by seeking the help of an experienced and trusted Long-Term Care Insurance specialist. Find a specialist by clicking here.
There are other tools and resources available to help you plan. Find these resources by clicking here.
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