More people save for retiree health care costs

(MoneyWatch) According to the results of a recent survey by Fidelity Investments, the number of employees with health savings accounts (HSAs) at the firm jumped 61 percent last year as more employees took advantage of the tax-free savings vehicle to fund current and future health expenses. HSAs offer three key tax advantages:

-- Money contributed to an HSA is tax deductible.
-- Investment gains are generally free of federal income taxes, although state tax treatments can vary.
-- Withdrawals aren't subject to federal income taxes for qualified medical expenses. Again, state tax treatments can vary.

The average annual contribution to HSA accounts at Fidelity was $2,677 last year, taking both employer and employee contributions into account. The annual contribution limit set by the IRS for 2012 is $3,100 for an individuals and $6,250 for families. Add $1,000 to these limits if the HSA account holder is age 55 or older.

The Fidelity survey also reported that most HSA account holders carry their account balances forward to future years. Unlike flexible spending accounts, the annual HSA contribution doesn't need to be spent in the current year.

I'm glad to see more people putting aside more money in HSAs, since retiree medical expenses represent a significant expense in your retirement years. However, just because you're saving in an HSA, you shouldn't get complacent about taking care of your health. It will be hard to accumulate sufficient funds in an HSA account to pay for a significant portion of your out-of-pocket medical expenses in retirement, so you'll still want to take whatever steps you can to minimize the odds of contracting expensive medical conditions.

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HSA contributions: Save or invest?

To be eligible to contribute to an HSA account, you need to participate in a high deductible medical plan. The existence of this high deductible should give you an extra financial incentive to take care of your health. If you're eligible to contribute to an HSA, I encourage you to save as much as possible and adopt healthy eating and exercise habits. The unfortunate reality is that more and more, we'll be on our own to pay for medical expenses in our retirement years. The best we can do to address this threat is to take a hint from the Boy Scouts, and be prepared.

Photo courtesy of iStockphoto contributor philipdyer

[stevevernon]

Hi credibility2 and schnealy

This confirms that unused HSA funds are rolled over to future years. Money in Flexible Spending Accounts (FSAs) aren't rolled over, so it's use it or lose it for FSAs, but not HSAs.

Thanks, Steve

[mpjeno]

My organization got rid of their PPO option two years ago, so we can only choose from an HSA or an HRA. As a healthy, young adult, I was able to opt into the HSA and save several thousand dollars over the last few years without wasting much of anything on my premiums. Now that I'm pregnant, I'm on my husband's insurance (as the high-deductibles of HSAs are out of this world), but we're literally not paying a dime out of our pockets towards this pregnancy. It's all coming from my HSA.

Research and planning have really helped us in this instance. Hopefully we'll have the foresight to continue to save as we raise our family and move towards retirement!

[credibility2]

The problem with HSAs is that any unused money in the accounts is kept by the insuring company and not carried over for later use by the insuree. While some costs can be predicted by the insuree, emergencies and catastrophic incidents can't. The unused money is an indirect profit to the insurance companies where the insured never receives interest for the insurance savings account and essentially ends up paying for something they often never receive.

[schnealy]

No, as it says in the article, HSA funds rollover year to year. The HRA is the one that does not.