savings options for health care costs in retirement

[TennKy]

I’d love some input on savings strategies for health care costs in retirement. I’m posting under investing rather than personal finance because I don’t intend to use this money for 20 or so years. I’m a 45 year-old single woman with no children and no debt. I have good health insurance -- not an HSA -- and renew my health care Flexible Spending Account every year. I’m not, however, a good candidate for long-term care insurance. As an alternative, I want to start funding an account (better late than never!) to cover future health care needs with the expectation of contributing at least $200 every month.

My preference is to invest through Vanguard where I already have several accounts, including a Roth IRA and an old 403(b). My question: What savings vehicle would be a good choice for my personal health care savings? And how do I determine if it should be in a taxable or tax-deferred account?

I will be grateful for any guidance.

[texasdiver]

I think an HSA would be your best option due to the tax benefits but that is only possible if you have a qualifying high deductible health insurance plan. HSA savings accounts are tax deductible when you deposit the money and they are tax-exempt when you pull the money out for health expenses so they are actually better than either a traditional IRA or Roth in that they are tax free at both ends rather than just the deposit end (traditional IRA) or withdrawal end (Roth). But if you don't have a high deductible health plan available or have reasons not to use one then it is a moot point.

If you haven't maximized your tax advantaged space (IRAs, Roth, 401(k) etc. that would be your second choice of saving vehicle for retirement health expenses. Traditional IRAs you can take out a 59 1/2 and Roths you can take out any time (just the deposits, not the earnings).

You would only want to consider taxable accounts if (1) you are contemplating needing the money before you are eligible to take it out of your IRAs, or (2) you don't any more tax advantaged space.

[TennKy]

Thank you, texasdriver, for your thoughtful response. I'm not eligible for an HSA so I will look into a tax-advantaged account.

[Hexdump]

I am on Medicare but we need to provide for my wife who will be still employed until Sept. of this year. She has a HDHP/HSA through work which we plan to keep via COBRA. After that expires, we plan to try and purchase it privately. This all depends on what will happen vis ObamaCare.

We also bought $25,000 in IBonds figuring to keep them and use them for Long Term Care if necessary. We might buy some more of these.

Good luck

[Firam]

Thank you, texasdriver, for your thoughtful response. I'm not eligible for an HSA so I will look into a tax-advantaged account.

An HSA is the best way to save for medical expenses. You pay ZERO taxes, it is an amazing deal. Can you get into an HDHP?