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Is a Health Savings Account missing from your retirement plan? 

Consider maximizing contributions to a Health Savings Account (HSA) before your IRA for qualified medical expenses in retirement.

Tags: Healthcare, Planning, Retirement, Savings, Be prepared
Published: August 09, 2018

When the topic of how to best save for retirement comes up, the conversation likely turns to widely used accounts like IRAs and 401(k)s.

While much of what drives that thinking still remains true, many investors are missing out on the benefits of tax-advantaged HSAs. HSAs are triple-tax-advantaged, allowing you to put money in pre-tax, grow it tax-deferred and take it out tax-free — as long as the withdrawal is used for qualified healthcare expenses.*


* Prior to reaching age 65 or becoming disabled, if any distributions are taken for anything other than qualified medical expenses, the distribution is taxed as ordinary income and there is an additional 20 percent tax. 1


How does an HSA work?

At its core, an HSA allows the account owner to contribute pre-tax funds that continue to grow untaxed as long as they remain in the account. What’s more, funds withdrawn are not taxed if they are used to pay for qualified medical expenses, unlike withdrawals from a 401(k) or traditional IRA on which you pay income tax.

  • HSA eligibility: In order to qualify for an HSA, you must have a high-deductible health plan, which currently means a minimum annual deductible of $1,400 for individual coverage and $2,800 for families.2

  • Contributions: Individuals can currently contribute a maximum of $3,550 to their account annually, while families have a set annual limit of $7,100.2 Those over age 55 can contribute an additional $1,000 per year. However, you can no longer make contributions once you’ve enrolled in Medicare. 

HSAs function like other retirement accounts in the sense that contributions and earnings can accumulate in the account from year to year and the funds within can be invested long-term. But they're unique for the tax-free withdrawals mentioned above, they don’t require account holders to start withdrawing funds at a certain age, and they don’t adhere to the “use-it-or-lose-it model” of most flexible spending accounts.3

If you enroll in Medicare at age 65, you are no longer able to make contributions, but you can still withdraw HSA funds tax-free in order to pay for your Medicare premiums and expenses.


No time limit for distributions

Starting early in your career, making contributions to an HSA each year allows the account to build up until you retire. You can make withdrawals tax-free from the HSA account at any time to cover out-of-pocket healthcare expenses, freeing up other savings that can now be used toward retirement spending.


Learn more about our approach to retirement savings and income planning.


1 “Publication 969.” IRS.
2 “Internal Revenue Bulletin: 2019-2022.” IRS.
3 “FSA vs. HSA: How to Make the Best Choice During Open Enrollment,” U.S. News & World Report, Nov. 19, 2015.