By Mike Gibbons, RICP®

One of the strongest arguments for using the Abbott Laboratories/AbbVie HSA is it allows you to lower your federal income taxes by making tax-free deposits into your account. The contributions can be deducted pre-tax from payroll or deducted from your income on your tax return. Contributions can be made by yourself or your employer, and if your employer does choose to invest in an HSA for you, the money is not taxed as income for the employee. But is this right for you? And will you see the tax benefits? That depends on your income and financial situation.

What Are HSAs?

HSAs are tax-advantaged savings accounts meant for people enrolled in high-deductible health plans (HDHP) to help make out-of-pocket medical expenses more affordable. HDHPs are defined by the IRS as $1,400 per year for individual coverage or $2,800 for family coverage. If your deductible meets or exceeds these limits, you qualify for an HSA.

Triple Tax Benefits

HDHPs can be quite intimidating due to the risk of high out-of-pocket healthcare costs. To help alleviate this gap in coverage, HSAs were created. They combine the benefits of a 401(k) with a Roth IRA, offering unparalleled tax savings, including: 

• Tax-deductible contributions with no income limits

• Tax-free earnings

• Tax-free withdrawals (if used to pay for qualified medical expenses)

An HSA is the only savings vehicle that allows you to both contribute and withdraw money tax-free!

Retirement Savings

If HSAs are so unparalleled in their benefits, why aren’t more people using them? It’s important to note that an HSA doesn’t make sense for everyone. If you know you’re going to have high medical expenses, it’s unwise to enroll in a high-deductible plan and pay more out of pocket. 

HSAs are better utilized by those who anticipate minimal healthcare costs, and who can afford to pay those costs out of pocket rather than from accumulated HSA funds. This is because, if possible, saving all of your contributions in an HSA account can act as another way to save for retirement—an incredibly cost-effective way to save for retirement, in fact! This is why they are sometimes referred to as “stealth IRAs.”

Here’s how it works.

Contributed funds can be withdrawn tax-free at any time to pay for qualified medical expenses. Or they can be saved until age 65, withdrawn at your marginal tax rate, and used for any retirement expense. This essentially converts the HSA into a traditional IRA or 401(k) account. It’s important to note that funds withdrawn before 65 and used for non-medical expenses will be taxed and incur a 20% penalty. 

Additionally, HSAs do not have required minimum distributions. This means that your money can continue to grow up to and during your retirement years. Annual contribution limits for 2022 are $3,650 for individual coverage and $7,300 for family coverage, and additional $1,000 catch-up contributions are allowed for individuals over the age of 55. Over time, maxing out these contributions can build a sizable retirement nest egg, especially when combined with other workplace savings plans.

Why the Abbott/AbbVie HSA?

The great news about the Abbott/AbbVie HSA is that it can also be combined with the Abbott/AbbVie FSA to maximize your savings. The Abbott/AbbVie FSA allows eligible employees to make tax-free contributions to cover out-of-pocket expenses, and it can be used toward healthcare expenses like copays, coinsurance, prescriptions, glasses, contacts, and LASIK surgery. Funds can also be used for dependent care expenses such as child and eldercare. 

Contributing to both an HSA and an FSA but only using the funds in the FSA account to pay for medical expenses can be an effective way to keep HSA funds invested as retirement savings.

Are You Making the Most of Your Abbott/AbbVie HSA?

If you are an Abbott/AbbVie employee looking to make the most out of your HSA, please reach out to us at 224-419-5550 or email me at Mike@gibbonsfinancialgroup.com to schedule a complimentary consultation. And be sure to join our free webinar, Retiring Early From Pharma, which was created specifically for professionals retiring from the pharmaceutical, biotechnology, and healthcare industries.

About Mike

Michael J. Gibbons is founder and president of Gibbons Financial Group, an independent advisory firm providing custom-tailored financial planning and investment management services to pharmaceutical and healthcare professionals and their families. Mike has over 25 years of experience and spends a significant portion of his day working with pre-retirees and retirees, focusing on asset management, Social Security and pension planning, as well as retirement income preparation. 

Mike has degrees in both business and psychology from Lake Forest College and currently holds his Retirement Income Certified Professional (RICP®) designation from the American College. Mike was named a Five Star Wealth Manager for 2016 and 2018* Mike is heavily involved in his community, having served on the Village of Gurnee Police Pension Board as a Community Volunteer and the St. Patrick’s Parish Financial Board. When he’s not working or volunteering, Mike loves playing golf and spending his time with his wife and children. To learn more about Mike and how he can help you, connect with him on LinkedIn, visit his website, and register for his free webinar, Retiring Early From Pharma, created specifically for professionals retiring from the pharmaceutical, biotechnology, and healthcare industries.

*Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2016/2018 Five Star Wealth Managers.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.