A health savings plan is a fantastic tool that can lessen the burden of health care costs now and in the future when you retire. To qualify to contribute to a health savings plan, you must be enrolled in a high-deductible healthcare plan (HDHP). And, while the HDHP covers you for catastrophic medical issues, HSA funds can be used for most other qualified medical costs. When used together, the HDHP and HSA can be incredibly beneficial in covering most of your health care needs.
A self-directed health savings account gives you the additional benefit of investing those funds into alternative assets that can boost the earnings in the account. When used in tandem with retirement funds, HSAs have the potential to significantly offset your retirement income, enabling you to use the HSA funds for medical expenses and your actual retirement funds for all else. In the face of rising health care costs at a time when you’re living on a fixed income, HSAs are worth their weight in gold.
Why Use an HSA?
- The deductibles of HDHPs are high, but the premiums are low, and their renewal rates are quite a bit cheaper than PPOs and HMOs. This can mean big savings over time.
- HSAs do not bind you to a network of medical professionals and facilities. You have the freedom to choose your own doctors and health care providers.
- HSA funds can be used for qualified medical expenses and even cover additional costs that may not be covered by PPOs or HMOs such as dental, eye, psychiatry and other care. See IRS Publication 502 for details on qualified expenses.
- The funds in your health savings account don’t have an expiration date. If you don’t use them, the funds roll over from year-to-year and remain available until you do need them.
- Depending on your situation, health care costs may not be considered a tax-deductible event. However, contributions to an HSA are tax-deferred and funds spent on qualified health care costs are deductible.
Why Should I Use a Self-Directed HSA?
- Self-directed health savings accounts allow the funds to be invested into alternative assets, which have the potential to earn income at a faster pace than traditional investments present.
- Alternative investments offer an incredibly large and diverse pool of potential income-building assets such as real estate, private mortgages, futures and forex, private equity—and so much more.
- Funds inside your HSA earn interest. Again, over time, these earnings can be significant thanks to compound interest and any successful investments you purchased with those funds.
- You can partner your self-directed HSA funds with your self-directed retirement plan funds to invest. This enables you to acquire more lucrative assets, if you choose.
- When you use a self-directed health savings plan and a retirement plan, you control not only the funds in both accounts, but the investing decisions, as well. This means you gain control of quite a bit in a world where controlling anything is sometimes merely an illusion.
Want a Bonus?
You can open more than one health savings account (HSA), which also means you can have more than one self-directed health savings plan. While the contribution limits for 2019 for all accounts cannot exceed $3,500 for individual plans or $7,000 for family plans, having more than one account allows you to strategically manage your funds. In the event you need cash to pay for a medical expense, it helps to have one account that’s totally liquid. The other one (or two or three!) can be tied up in assets that are hopefully also producing income.
If you’d like to learn more about self-directed health savings plans, please contact Advanta IRA by by phone at 800.425.0653 or send us a message online.
This article was first published on January 13, 2017, and has been updated with current information.