The Internal Revenue Service (IRS) recently disclosed a substantial augmentation to the annual contributions Americans can allocate to their health savings accounts (HSAs). This enhancement, the most significant on record, is pertinent for the fiscal year 2024, setting the upper limit of HSA contributions at $8,300 for families and $4,150 for individuals. These figures represent a considerable rise from the previous thresholds of $7,750 and $3,850, respectively, for the year 2023.
Notably, participants who are 55 years of age or older are eligible to contribute an additional $1,000, making it feasible for an older married couple to reserve up to $10,300 annually in their HSAs. This adjustment could result in a potential accumulation of over $100,000 in these accounts during the decade preceding retirement.
Despite their advantages, HSAs remain both misconstrued and underutilized, as identified by the non-profit Employee Benefit Research Institute. Eligibility for contributions requires enrolment in an HSA-qualified high-deductible health plan and an absence of enrolment in Medicare. When utilized effectively, these accounts offer notable tax savings, more so than traditional or Roth retirement accounts. Contributions are made before tax, accrue interest tax-free, and withdrawals are untaxed when used for qualifying healthcare expenditures.
Such eligible medical expenses are extensive, encompassing Medicare Part B premiums (which are projected to approach $4,000 for a married couple with an income of up to $194,000 in 2023), deductibles, copayments, and expenses relating to vision, dental, hearing, and even long-term care. As the trend of employers providing retiree healthcare benefits continues to decline, the onus is increasingly on ManTech International professionals to integrate these expenses into their retirement financial strategies.
Financial advisers highlight the necessity of robust planning for healthcare costs in ManTech International retirement. According to the Employee Benefit Research Institute, a couple retiring this year would require an estimated $318,000 to have a 90% probability of covering healthcare expenses in retirement, assuming they are enrolled in a Medigap plan.
Furthermore, HSA holders can derive immediate tax benefits by depositing funds into the HSA and subsequently withdrawing them for healthcare costs. There’s also the advantage of being able to invest the funds for potential growth. Roy Ramthun, a key figure in the U.S. Treasury Department during the inception of HSAs in 2003, emphasizes their strategic use in retirement planning, focusing primarily on investment opportunities they present.
It's essential to note that HSA contribution limits are subject to annual inflation adjustments. Historically, these increases have ranged between $100 and $200. However, due to heightened inflation, the maximum contribution for families saw an unprecedented increase of $450 in 2023, followed by an additional $550 for 2024.
Statistical data from Devenir Research indicates that, as of the end of January, Americans had approximately $112.5 billion in roughly 37 million HSA accounts. This figure is particularly striking when considering that Americans annually expend nearly $400 billion on healthcare expenses using post-tax dollars, as reported by HSA provider Alegeus.
While most 401(k) plans default to investing in target-date funds, HSAs offer participants the discretion to invest, usually after their account exceeds a specific minimum balance, commonly around $1,000. This distinction became particularly salient for Sandeep Abrol, a recent ManTech International retiree, who discovered that his $26,000 HSA contribution, accumulated over seven years, had yielded minimal returns in an interest-bearing checking account.
According to Devenir, the average total balance for an HSA holder investing their funds was $16,397 at the end of 2022, in stark contrast to a $2,445 average for those with non-invested deposit accounts.
HSAs also carry the benefit of permanence, in contrast to the commonly used health flexible spending accounts (FSAs), which typically allow limited rollovers from year to year. HSAs remain with the account holder regardless of changes in employment. As such, individuals switching jobs with substantial amounts in their HSAs need to be vigilant in managing these accounts. Strategies include using the funds in an older HSA while concurrently accruing savings in a new one, thereby optimizing the financial benefits these accounts offer.
Featured Video
Articles you may find interesting:
- 8 Tenets of Choosing a Mutual Fund
- Use of Escrow Accounts: Divorce
- Section 303 Stock Redemption Buy-Sell Agreement
- Medicare Open Enrollment Is Here: How Are Costs Changing for 2023?
- 2022 High Net Worth Tax Planning
- Policy Roadmap
- Section 179 Deductions
- Learn About the Path to Retirement
- Contemplating Change: 7 Key Factors When Considering a Transition from Your Company
- How Are Workers Impacted by Inflation & Rising Interest Rates?
- Lump-Sum vs Annuity and Rising Interest Rates
- Advice for Retirees Trying to Survive a Bear Market
- 5 Most Important Things to do Before Leaving Your Company
- Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)
- 6 Retirement Myths Employees Need to Know!
- 401K, Social Security, Pension – How to Maximize Your Options
- Have You Looked at Your 401(k) Plan Recently?
- 8 Tenets of Choosing a Mutual Fund
- Use of Escrow Accounts: Divorce
- Section 303 Stock Redemption Buy-Sell Agreement
- Medicare Open Enrollment Is Here: How Are Costs Changing for 2023?
- 2022 High Net Worth Tax Planning
- Policy Roadmap
- Section 179 Deductions
- Learn About the Path to Retirement
- Contemplating Change: 7 Key Factors When Considering a Transition from Your Company
- How Are Workers Impacted by Inflation & Rising Interest Rates?
- Lump-Sum vs Annuity and Rising Interest Rates
- Advice for Retirees Trying to Survive a Bear Market
- 5 Most Important Things to do Before Leaving Your Company
- Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)
- 6 Retirement Myths Employees Need to Know!
- 401K, Social Security, Pension – How to Maximize Your Options
- Have You Looked at Your 401(k) Plan Recently?
In the current economic climate, understanding and leveraging the potential of HSAs is increasingly critical for strategic retirement planning, especially considering the escalating healthcare costs anticipated during retirement.
Another critical aspect for ManTech International professionals nearing retirement is the potential impact of Required Minimum Distributions (RMDs) from other retirement accounts on Medicare premiums due to income thresholds. According to a report by the IRS (2021), RMDs, mandated withdrawals from tax-deferred retirement accounts at age 72, can inadvertently increase taxable income, potentially pushing individuals into a higher income bracket affecting Medicare Part B and D premiums two years later. Strategically utilizing HSA funds for medical expenses instead can mitigate this taxable income surge, optimizing financial streams during retirement.
Navigating ManTech International retirement finances is akin to a seasoned sailor embarking on a longstanding journey across uncharted waters. The newly announced HSA contribution increase acts like a sturdy, expansive sail, catching more wind to drive the ship forward more robustly and stably. Just as this sail empowers the sailor to harness the wind's natural power for a more efficient journey, the enhanced HSA allows retirees and pre-retirees to harness greater financial resources. It ensures a smoother passage through the unpredictable seas of healthcare costs and retirement expenses. This strategic financial tool, often underutilized like an overlooked nautical map, now offers an even greater promise of security amidst the often turbulent financial currents of retirement, helping our navigators reach the golden shores of their post-career years with reassurance and prosperity.