JULY 1, 2020

Health care is an ever-present concern for federal retirees. Rising health care costs over time, coupled with the reality that you generally need more medical attention the older you get, can produce anxiety over not-yet-realized medical expenses. As a federal employee, you can continue coverage under Federal Employees Health Benefits (FEHB) assuming you meet the necessary criteria. Federal retirees also have the option to continue long-term care coverage under the Federal Long-Term Care Insurance Program (FLCTIP) and dental and vision coverage under Federal Employees Dental and Vision Insurance Program (FEDVIP). Acronyms aside, even with government aid, health care can be a significant cost—especially in retirement. Although it’s not insurance, a health savings account (HSA) can be a useful tool to alleviate some of the strain of health care costs.

HSA: A SPECIAL WAY TO PAY

Health savings accounts have emerged as another solution to health care needs. An HSA isn’t insurance, but it does provide a tax-advantaged savings account, to which you, and potentially, your employer, can make contributions over time. You can use these funds to pay for most medical expenses, including prescription drugs, dental treatment, and vision care.

Once you reach age 65, you’ll be required to stop making contributions to an HSA. Remember, if you withdraw money from your HSA for a non-medical reason, that money becomes taxable income, and you face an additional 20% penalty. After age 65, you can take money out without the 20% penalty, but it still becomes taxable income.1

HSA LIMITS TO CONSIDER

There are some HSA rules and limitations to take into consideration. You’re limited to a $3,550 contribution for 2020, if you are single; it’s $7,100 if you have a spouse or family. Those limits jump by a $1,000 catch-up limit for each person in the household over age 55. Your employer can contribute, but the ceiling is cumulative between your contributions and the employer. For example, let’s say you’re lucky enough to have your employer put a hypothetical $1,000 into your account in 2020; you may only contribute as much as the rest of your limit. If you go over that limit, you’ll incur a 6% tax penalty, so it’s smart to keep an eye on how much you’re putting in.1,2

To learn more about federal employees’ health savings account options, visit OPM.gov.

THE BIG PICTURE

The term “medical expenses” can cover quite a spectrum of issues. Unfortunately, retirement can easily be spent discovering how many different and new expenses there really are. Despite this grim potential, worriedly speculating about future illnesses is perhaps more harmful than the ailments themselves. Federal employees can sensibly prepare for the future through a number of tools. Perhaps a health savings account can be that tool for you. Take advantage of your options today; formulate a plan and remain calm and confident in the face of an uncertain future.

1. https://www.investopedia.com/terms/h/hsa.asp

2. https://www.optumbank.com/all-products/hsa/investment-services.html

We Are Here to Help.

Federal retirees have a wide array of options to consider when it comes to health care costs. This wide selection is a benefit but can become overwhelming as each option carries its own set of rules and regulations. For more than ten years Retirement Benefits Institute has been helping federal employees understand their retirement options. The first step in this process is preparing a Federal Benefits Analysis. Contact us at 877-864-1145 or click “Get Support” below to learn more about this option.

Disclosure

The information contained in this blog should not be used in any actual transaction without the advice and guidance of a tax or financial professional who is familiar with all the relevant facts. The information contained here is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for the individual’s specific circumstances or needs and may require consideration of other matters. RBI is not a broker-dealer, investment advisory firm, insurance company, or agency and does not provide investment or insurance-related advice or recommendations. Brandon Christy, President of RBI, is also President of Christy Capital Management, Inc., a Registered Investment Advisor.