56% of Workers Say Affording Healthcare in Retirement Is a Major Goal. Here’s How to Meet It.

Retirement can be a financially precarious period of life. After all, you're moving over to a fixed income and may not have the option to hold down a job to boost your earnings.

In a recent Nationwide survey, 56% of workers said that being able to pay for healthcare in retirement is a major goal. And there's one account that could make future medical costs easier to manage.

Set money aside specifically for healthcare

You may be inclined to simply boost your IRA or 401(k) plan contributions and use that extra money to cover your healthcare costs down the line. But if you really want to put yourself in a position to cover your senior medical costs without stress, it pays to have an account that's dedicated to healthcare spending. That's where a health savings account (HSA) comes into play.

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With an HSA, you can set aside money to cover both near-term and future medical costs. The beauty of an HSA is that your funds will never expire. You can contribute to an HSA in your 20s and use that money in your 80s to pay for healthcare bills, whether it's copays for prescriptions or Medicare premiums.

Plus, HSAs actually offer more tax benefits than any other tax-advantaged savings plan. If you have a traditional IRA, you may be aware that you get to enjoy tax-free contributions. But you don't get tax-free withdrawals. And if you have a Roth IRA, you get tax-free investment gains and withdrawals in your account, but no tax break on the money you put in.

With an HSA, you get three distinct tax breaks:

Contributions are tax-free
Investment gains (you can invest funds you don't withdraw immediately) are tax-free
Withdrawals are tax-free, provided they're used for qualified medical expenses

Furthermore, HSAs are extremely flexible in that once you turn 65, they revert to a traditional retirement savings plan. That means you can use your money to pay for any expense without penalty — it doesn't have to be health-related. In that situation, you won't be entitled to tax-free withdrawals, but you're no worse off than you are with money in a traditional IRA or 401(k).

Take healthcare worries out of the equation

Being able to pay for healthcare in retirement with ease could remove a lot of stress during your senior years. If you're able to participate in an HSA, it pays to do so and get as close as possible to maxing out year after year.

Right now, HSA contributions max out at $3,650 for self-only coverage and $7,300 for family coverage. There's also a $1,000 catch-up option for savers aged 55 and over (note that with IRAs and 401(k), catch-ups start five years earlier). Next year, these limits will rise to $3,850 and $7,750, respectively, while that $1,000 catch-up amount will stay the same.

HSA eligibility hinges on being enrolled in a high-deductible health insurance plan, so not everyone qualifies. But if your health insurance plan is compatible with an HSA, then it pays to take advantage of that savings opportunity.

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