The dream of scraping $ 1 million together on a health savings account by retirement may sound cake in the air, but it is not impossible.
When you start early, contribute the maximum preset fee annually, add any catch -up contributions and let it ride four decades without tapping the costs of health care, you have a chance to do that, according to A new analysis of the non -party -related employee benefit Research Institute (EBRI). Families can save almost twice as much.
“The study is all about the potential,” Paul Fronstin, director of health benefits of EBRI and an author of the report, told Yahoo Finance. “Under the best possible conditions.”
As a rapid renewal, an HSA benefits from a triple tax benefit. It is the only account with which you can apply money -free basis, build it up tax -free and let it be tax -free for qualified health care costs. (One disadvantage: some states assess state taxes.)
More information: What is a health savings account?
To put money in an HSA, you must be registered for a highly deductible health plan. In these plans you pay a lower premium per month than other types of health insurance, but a higher annual deductible (the amount you pay for covered medical costs before the insurance starts). Before 2025, this translates into a deductible of at least $ 1,650 for individual coverage and $ 3,300 for family coverage. You can also open an HSA as an independent freelancer or business owner if you have a qualified high health plan. Your contributions roll over year after year and are yours to take with you when you retire or change from employers.
The only way in which you could save an amount, such as a million dollars, with an HSA is if you don’t use it, “said Andrea Ducas, vice-president of health policy at the Center for American Progress. (Getty Creative) ·Momo Productions via Getty Images
The limit of 2025 for an HSA is $ 4,300 for private individuals and $ 8,550 for families. People who are 55 years or older can contribute an extra $ 1,000 extra.
Read more: HSA -Broadelimites for 2024 and 2025
The researchers came up with this assumption to the striking millionaire status: at 25 you start to contribute the maximum permitted amount each year and you make these contributions steadily up to and including 64 years without using medical costs. The money is left in investment vehicles that yield a return of 7.5%. The EBRI researchers did not take into account contributions that an employer could make.
It is therefore possible to save seven figures in an HSA in theory. But do you have to?
Opinions vary.
“The only way in which you could save an amount, such as a million dollars, with an HSA is if you don’t use it, which is, unlike the point”, Center for American Progress, a policy institute, said Yahoo Finance.
“HSAs are a tool that is designed to help people afford to use their high -quality health plans,” she said. “The purpose of an HSA should be to help you cover your expenses. So if you have a deductible of $ 5,000, it is useful to give you some tax benefits for the money you spend. “
And then there is a towbar: “We know that many people in America cannot even think of $ 400 in an emergency. An HSA will not be useful for those people. “
In the real world, most account holders pull money out of their HSAs to cover current medical accounts. The average recording of an HSA account last year was around $ 1,300, according to HSA consultancy Devenir.
“Most people use it as a payment account, not an investment account,” said Fronstin. “They mainly use it to pay the current health care costs.”
Moreover, maximizing a contribution every year is a fantasy for many employees. “The assumption that you can maximize your contributions is potentially unrealistic for many people,” Fronstin said. “Most people have competitive needs … If you come from school, you have student loans, if you have children, or you buy a house, try to save for retirement, helping your children with your children their school and so on. “
Many HSA account holders do not invest their HSA savings. Only about 3.2 million health savings accounts have invested at least part of their HSA dollars, per devenir. Most simply leave the money in cash and miss one of the most important benefits of one of the account.
To achieve a millionaire status, you must invest – and start early, said Ebrri’s Fronstin. “If you start at 46, you won’t get close to the million dollars. You won’t even be halfway. “
That said, as the often repeated saying goes: the best time to plant a tree was 20 years ago. The second best time is now.
HSA funds, even if they don’t tickle seven digits, can go a long way in covering medical costs, even after you have registered for Medicare at the age of 65.
EBRI estimates that a 65-year-old man who is registered for a Medigap plan must save to save $ 184,000 to have a great chance of having enough to cover premiums and drug expenditure on prescriptions during retirement, and A woman will have to save $ 217,000. Couples must save $ 351,000. It naturally varies through how healthy someone is and whether they have retired health coverage of his former employer or the type of Medicare plan.
Do you have a question about retirement? Personal finances? Is there something career-related? Click here to drop Kerry Hannon a note.
You can make a contribution for 2024 to the deadline of this year’s tax return, which is April 15 in most states. Federal disaster areas have extensive closures of submitting.
“Even if you don’t get a million, building an HSA account will certainly be useful for covering health care costs when retirement,” Fronstin said.
Kerry Hannon is a senior columnist at Yahoo Finance. She is a career and pension strategist and the author of 14 books, including “In control of 50+: how to succeed in the New World of Work “ And “never too old to get rich.” Follow her on Bluesky.
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