Learn a great tax-free way to help start funding your healthcare in retirement. Welcome, everyone, to another edition of the Highball Advisors Railroad Retirement Whiteboard. My name is John McNamara, Highball Advisors. And today we're going to talk about starting to fund your healthcare savings as you prepare for railroad retirement.
Healthcare, big expense in retirement. There's no doubt about it. I mean, right up there with taxes, so you got to have plans for that. What I'm going about to show you is, it's not going to fund your whole healthcare in retirement by any stretch of the imagination, but it's something that's there that you can take advantage of. And it's definitely worth a watch here. What I'm talking about is health savings accounts. They're triple tax free. Check out my video, A Good Prescription for Railroad Retirement. It really goes into the benefits of the health savings account. I love them.
So just the real high level stuff. Triple tax free, you have to have a high deductible healthcare plan. And what's nice is you could put away as a family, I'll just do the family rates here, $7,100 a year triple tax free if you're under 55. And then they have a catch-up feature. If you're over 55, $8100 a year. So if you have that HSA, you got to be doing that every year, for sure.
But this is something you can also do to fund that HSA, if you're so inclined to, is you could do an IRA to an HSA transfer, which is great. The government lets you do this one time. You can only do it one time. That's why I say, it's not going to fund your whole healthcare, but hey, it's great chance to put some money into that HSA. So maybe you're saying, "I don't have any money to fund the HSA this year." Take it out of the IRA, put it into your HSA because you're definitely going to have healthcare expenses in retirement. You can use it to pay Medicare premiums, that type of thing. You're definitely going to spend the money in retirement.
So you get that one-time transfer, one shot at it. And it's great because you could use it, it'll help provide maybe an emergency fund in the HSA. And it will help start building some money for retirement. Now, it's kind of tricky the way you have to do it. It's a trustee to trustee transfer. So if you have an IRA, you got to get on to them and it's got to be transferred directly to the HSA. It can't go to you. Hey, cut me a check and then I'll send it in. No, you can't do that. You're going to have tax implications on that. That's going to look like a distribution. All right. So it's got to be a trustee to trustee transfer.
Now, let me just show you the example of the benefit of it. Let's say you're over 55. You're nearing retirement. Maybe you left the railroad at 60. Not until 65 Medicare kicks in, because at 65, you can't fund HSAs anymore, if you're on Medicare. If you're still working on a company plan, you can still fund an HSA. But let's just say you could take $8,100 out of your IRA because you're going to have to pay tax on that at the ordinary income rate. And transfer that tax free to your HSA. And let's just assume your tax rate was 24%. So what you're able to do is take that $8,100 transfer it into an HSA. Instead of paying the 24.5%, that's free, because now it's in the HSA.
That's going to save you a little over $1,900 just on that one move of funding that HSA. So it's a way. You got $8,100 in your HSA, it's tax-free, it's a good way to do it. Like I say, it's not going to fund your whole healthcare budget by any stretch of the imagination, but it's one time. Take advantage of it if you can. If it works out, if you have an HSA, I highly recommend it.
Hope you found this helpful. Reach out to me if you have any questions. Check out my Boarding for Railroad Retirement process. Go through that. Especially as you near retirement, to understand exactly what some of these expenses are going to look like in retirement. They can be daunting for sure. Please share this video with other railroaders. That'd be great. Subscribe to the channel. Notifications, click on that too. That'd be great. So everyone until next time, please stay safe. Stay on track and take care. So long, everybody. Bye.
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved.from Highball Advisors, and all rights are reserved.