Using your Health Savings Account as a Retirement Tool

Health savings accounts (HSAs) can be effective tools in retirement. Learn about HSAs and how they can help pay for qualified medical expenses.

Posted on

Today, Health Savings Accounts (HSAs) are becoming a popular topic with retirees as more people continue to retire daily in America. These accounts have become an effective asset when it comes to paying for medical expenses during retirement. To understand what an HSA is and how it can be used as a retirement tool we should first define them.

What is an HSA?

Put simply, an HSA can be defined as a type of savings account you can fund on a pre-tax basis and use to pay for qualified medical expenses. These accounts are only available to people who are covered under a High Deductible Health Plan and do have limits on the amount of money you can contribute to them.
2018 HSA Contribution Limits:
• Individuals: $3,450
• Families: $6,900
• $1,000 catch-up if age 55 or older
As more people retire with these accounts, it’s important to address the question of how they can be used during retirement.

How to Use Your HSA for Retirement

After age 65, an HSA can be used to pay for any expense and can act as another Traditional IRA without the Required Minimum Distributions. Though it may not be recommended to use these accounts in this way, the option is available. The money taken from an HSA that is not used to pay for qualified medical expenses will be treated as taxable income. If you decide to take money from your HSA to pay for something other than qualified medical expenses before attaining age 65, the withdrawals will also be subject to a 20% penalty. Having an HSA during retirement can provide you with flexibility other accounts may not offer.
Many retirees do not know what expenses are considered qualified medical expenses that can be paid with funds from their HSAs. Paying for qualified medical expenses from an HSA allows you to pay for these expenses with pre-tax money. Below is a list of common qualified medical expenses many retirees miss.

Common Qualified Medical Expenses for Retirees

  • Prescription Medications
  • Hearing Aids
  • Long-Term Care Insurance
  • Nursing Home Fees
  • Contact Lenses
  • Teeth Cleanings
  • Dental Fillings
  • Eye Exams
  • Eyeglasses
  • Hospital Bills
  • Physical Therapy
  • X-Rays
  • Retirement Community Fees for Lifetime Care

What about HSAs and Medicare or Insurance?

One question we hear is if retirees can use HSAs to pay for Medicare premiums and/or health insurance premiums. You can use your HSA to pay for your Medicare premium as well as your Medicare Advantage premiums. If you are currently having your Medicare Part B premiums withheld from your Social Security check you may choose to reimburse yourself.
When it comes to Health Insurance premiums you can only use your HSA to pay for health insurance if you are paying for coverage under COBRA or are receiving Federal/State unemployment compensation. So, if you retire before you are eligible for Medicare your Health Insurance Premiums may not be eligible as a qualified medical expense, according to the IRS.
Overall, HSAs are a great asset to have during retirement and can be used to pay for many medical expenses that can occur. Before opening a health savings account, talk with a financial professional to determine if it is the right decision for you.

Will Your Money Last Through Retirement?

No one wants to run out of money. But without goals and a solid plan,
how can you know for sure whether you’re on the right track?

Will I be able to maintain my current lifestyle?

What will my monthly income be in retirement?

Can I protect my hard-earned savings and still
have the income I want?

Rodgers & Associates answers questions like these every day.

Get Personalized Answers
2025 Lititz Pike, Lancaster, PA 17601
Phone: 717-560-3800, Toll-Free: 888-876-3437