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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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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

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