As we reported last week, Republican leaders in the U.S. House of Representatives have unveiled a plan to overhaul Obamacare, officially called the Patient Protection and Affordable Care Act.
If the bill becomes law, it will significantly affect the health care coverage of millions of Americans. But it also could impact the retirement prospects of just as many citizens.
For one thing, the Republican proposal nearly doubles the amount of money people can contribute to health savings accounts. As we previously reported:
The basic limit on the total amount of contributions that you can make to a health savings account (HSA) each year would be increased to the maximum annual deductible and out-of-pocket expenses allowed under a high-deductible health insurance plan. That amounts to at least $6,550 in the case of self-only coverage and $13,100 in the case of family coverage.
Health savings accounts are controversial. Proponents say they can help you save money to pay for current and future health expenses. Contributions to an HSA are tax-free, and so are withdrawals if you use them to pay for qualified medical expenses.
Meanwhile, critics have criticized HSAs as just another tax break for the rich, since millions of Americans do not have the extra cash to put into an HSA.
While the wisdom behind HSAs can be debated, the fact is they offer an opportunity to save more for the future — and to trim your tax bill now — if you can afford to make contributions.
Most people use the money in their HSA to pay for medical expenses. But it is possible to park your savings in an HSA for years — or even decades — and watch your money compound into an extra savings pool for your golden years.
Money you don’t use for medical expenses can be withdrawn penalty-free during retirement to use in any way you choose. However, you will need to pay taxes on your withdrawals — just as you would with an IRA — if you don’t use the money to cover health care costs.
In addition to raising HSA contribution limits, CNN Money reports that some in Congress would like the bill to eliminate a rule that prevents people who are on Medicare from contributing to HSAs. The stated goal is to provide retirees with another way to defray rising medical costs.
So, keep a close eye on the health reform debate in coming weeks. The result is likely to impact your health care coverage — and your retirement as well.
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