Health Savings Accounts are one of the most powerful retirement planning accounts out there, if not the most powerful one. Despite this, many people don’t take advantage of them. If you want to take advantage of an HSA, you may be wondering how to fund an HSA. At REAP Financial, we want you to be set up for success in retirement, so we’re here to share some lesser-known ways to fund your HSA directly from your IRA and go over the benefits of doing so.
Health Savings Accounts (HSAs) are a great retirement planning tool, which is often underutilized. If you have a high deductible health plan, you likely qualify for an HSA, whether you have it through an employer or outside an employer. In 2024, if you are a single tax-filer, you can contribute up to $4,150. If you have a family plan, you can contribute up to $8,300, and if you’re over 55, you can also make a catch up contribution of $1,000. As you can see, you could be funneling lots of money into these accounts. But what is the benefit of doing so?
The Benefits of an HSA
There are three main benefits of an HSA account. First, when you put money in an HSA, you get a tax deduction. Second, the money grows tax deferred throughout the years. Finally, if you use the money for qualified medical expenses, it comes out of your account tax free. But beyond this, you can invest the funds in your HSA account along the way as well, fueling its growth even more. This gives you a way to fuel your future retirement income through your HSA! (Check out some of our other content for detailed information on that strategy).
Many people stockpile their HSAs so they can use that as tax-free retirement income down the road. Instead of using the money in their account to pay for qualified medical expenses when they come up, they keep a detailed record of those expenses and later cut themselves a retroactive reimbursement check. They may give themselves this reimbursement check all at once or in distributions as retirement income. That’s what makes it such a powerful tool!
Funding your HSA
When you’re thinking about how to fund your HSA, you can reach for the money in your bank or brokerage account. However, there’s another way to fund your HSA; that’s funding your HSA with your IRA. That means you can do a once in a lifetime transfer of money out of your IRA (which you already got a tax deduction on) and into your HSA. Doing this is especially wise if you have a lot of money in your IRA, and you want to have more control over your income and taxes in retirement. It is a really powerful tool we suggest leveraging towards the end of your career, if you have access to an HSA.
To be clear, you can only do this once, even if you have multiple IRAs. If and when you decide to do it, consult with your CPA or fiduciary advisor on how to do it correctly. When you’re using an HSA correctly in retirement, it can act as a kind of “super ROTH.” This is because you get the tax deduction as the money goes into your HSA, as well as the tax-free benefit on the backend. When you do this once-in-a-lifetime contribution from your IRA into your HSA, remember you won’t get a tax deduction that year, since you already got a tax deduction when the money went into your IRA. It’s just one more way to get an extra contribution into your HSA, with funds you already saved for retirement.
Optimizing Your Retirement
If you’re interested in optimal retirement planning, check out our 10 Retirement Tips Planning Guide! This amazing resource covers the HSA funding strategy we’ve discussed here and others to help supercharge your retirement plans. To get your free copy, send an email requesting it to retire@reapfinancial.com, and we’ll have it headed straight to your inbox.
Retirement Planning in Austin, Texas
If you’re in the Austin, Texas area and are looking for a retirement planner near you, speak with one of our expert retirement planners today. Our team at REAP Financial specializes in crafting personalized retirement strategies that align with your unique financial goals and lifestyle aspirations. Let us help you navigate the complexities of retirement planning and ensure a secure, comfortable future. Reach out to us for a consultation and take the first step towards a worry-free retirement in Austin.
Phone: (512) 249-7300
Main Office Address:
REAP Financial
9414 Anderson Mill Rd #100
Austin, TX 78729
