Another tip for Eli Lilly employees during your annual benefits enrollment. If you're making maximum contributions to your 401(k) and IRAs and want some additional tax-favored savings, you might use an HSA to supplement your nest egg. Even in retirement, you can tap the funds tax-free for medical needs. And starting at 65, you can withdraw penalty-free for any reason, though you'll owe income taxes.
The maximum allowable contribution to your HSA is $3,300 for an individual or $6,550 for a family. Of that, Lilly will contribute $800 for an individual and $1,600 for a family. There is also what is a called a catch-up contribution of $1,000 for individuals age 55 or older and not enrolled in Medicare.
You choose how the account is invested. If you're going to be using the money in the next five years keep it in the checking account in your HSA. If you're saving it for long-term, go with the investment account that Lilly offers.
Money in an HSA can be invested in a manner similar to investments in an IRA. Investment earnings are sheltered from taxation and withdrawals are tax free as long as they are used for qualified medical expenses. Withdrawals that are not for documented qualified medical expenses are subject to income taxes and a 20% penalty. The 20% tax penalty is waived for persons who have reached the age of 65 or have become disabled at the time of the withdrawal. Then, only income tax is paid on the withdrawal, and in effect the account has grown tax deferred (similar to an IRA).
The HSA can be a terrific tool to help pay for your medical expenses with pre-tax dollars now and/or to save for expenses in retirement, whether you use the money then for medical or non-medical expenses.