Why It's Important to Have an HSA if You Retire Before 65

By Stefon Walters | Originally posted on The Motley Fool

You could face a coverage gap if you don't have an HSA.

Medicare is the United States' health insurance program for people age 65 or older (with some exceptions for those with permanent kidney failure and other disabilities). During your working years, you and your employer each pay a 1.45% Medicare tax on all earnings, and once you turn age 65, you can begin reaping the benefits by having the program help with medical expenses. Medicare won't cover all medical expenses or most long-term care, but it will provide some financial assistance nonetheless.

There's a chance, however, that someone retires before age 65 and at that time is no longer eligible for the health insurance plan offered by their previous employer -- but neither are they eligible for Medicare yet, leaving them with a coverage gap. Or, they're able to get insurance but can't afford a plan comprehensive enough to cover their needs. Whatever the case, it's important to have additional income sources to help cover healthcare costs.

Get rewarded for saving for medical expenses

The older you get, the more likely it is you'll have medical expenses. It's an unfortunate but often unavoidable part of aging. It will, of course, vary by person, but the time between someone retiring early and being eligible for Medicare could bring on costly medical bills without good health insurance. That's where a health savings account (HSA) can really come in handy.

An HSA is a tax-advantaged account to which you contribute pre-tax money to use for qualified medical expenses if you have a high-deductible health plan (HDHP). You can also contribute after-tax money to an HSA and claim a deduction when you file taxes. In either case, contributing to an HSA will lower your annual taxable income. For 2022, the contribution limits for an HSA are…