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#175: Using a reverse mortgage to defer tapping HSA


At age 66, you plan on working two more years; your wife has plans to retire in a little over a year from today. With your children fairly well established in careers of their own, the two of you have been quite diligent about making maximum contributions to your 401K and Health Savings Account as well as to your spouse’s 403b, even foregoing some luxury spending in favor of adding to your jointly held investment portfolio. With your home fully paid for and well-maintained, you are glad to have been able to benefit from the past year’s stellar stock market performance as you look ahead to retirement.

A recent article in the Indianapolis Business Journal recommending deferring withdrawals from HSA accounts has given you cause to rethink some of your strategies. You had planned, between here and retirement, to finance your share of the costs for both eye surgery and some major dental work by making tax-free HSA withdrawals.  With your wife scheduled for joint replacement surgery two months from now, you were going to tap your HSA account to finance whatever part of those costs are not covered by her insurance plan.

“With triple-tax benefits, the humble HSA (Health Savings Account) emerges as an effective way to save for retirement,” IBJ columnist John Russell reminds readers, urging them to take a longer view, leaving their HSA accounts alone for now, so the investments can continue growing. While your joint tax bracket is undoubtedly higher now than it might be years after you retire (making tax-free withdrawals economical in terms of covering out-of-pocket medical costs in the near term), a more important concern, you now realize, involves ballooning healthcare costs later on. Unlike withdrawals you might make from your own rollover account (from your 401K or from your wife’s 403(b), withdrawals from an HSA will continue to be tax free when used for healthcare expenses in retirement.

You might consider using the equity built up in your home as a resource of for covering near-term healthcare costs, allowing you to defer HSA withdrawal and continue the potential for tax-free asset growth. With a HECM mortgage, you can use housing wealth to finance near term medical costs. With a reverse mortgage set up as a “line of credit”, you can use tax-free withdrawals to cover the costs of your dental care and eye surgery, as well as your wife’s orthopedic treatments. Whatever portion of your home equity is not being used will continue to be credited with growth at the same rate as the interest being charged on the outstanding loan balance. (In an investment overview, the reverse mortgage line of credit would be part of the “loaner” segment of the portfolio, balancing the stock “ownership” segment in your asset allocation plan.)

A reverse mortgage might preserve the power of your “powerhouse” Health Savings Account.

Readers, if you’d like to see what you might qualify for with a reverse mortgage in Indiana, or to download your Reverse Mortgage Guide Click Here (and scroll down).

Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: Equal Housing Lender