October 2017 Newsletter
I am looking forward to speaking at the upcoming 2017 Schwab IMPACT conference where I will be addressing the topic of Health Savings Accounts (HSAs). Many financial planners are familiar with the concept of investing HSA assets in order to build a source of tax free retirement income in order to pay for retirement health care expenditures. This does take some planning and discipline as the idea is to pay for current health care costs with other disposable income in order to keep the HSA assets fully invested and growing for retirement.
One employee benefit, a “Limited Purpose Flexible Spending Account (FSA)”, can be helpful with this endeavor. Unlike a regular Flexible Spending Account, that cannot be used if one contributes to an HSA, the limited purpose FSA actually compliments the HSA.
The most common limited purpose FSAs allow an employee to designate funds to be spent on vision and dental work. The idea is to use pre-tax dollars for these planned expenditures. By planning ahead, in addition to this FSA tax benefit, one can invest pre-tax income into their HSA and not be tempted to make a withdrawal for vision or dental work. To maximize the HSA account value for retirement, we want to fully fund it and fully invest it (in accordance to our risk tolerance).
It is worthwhile to note that funds committed to the limited purpose FSA do need to be spent over the course of the calendar year.
As HSAs become a core component of investment planning, it is important for advisors to understand these accounts and how to most efficiently incorporate them into the planning process.
The information in this presentation is provided as a general overview. It is derived from the Internal Revenue Code, Medicare.gov and other government publications, all subject matter sources reasonably believed to be reliable. Tax law and the laws governing Medicare/Medicaid are complex and subject to change. Clients should consult with their attorney and/or qualified tax advisor when making decisions regarding these matters.
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