Can You Use Your HSA For Retirement?

If you’ve been planning for retirement, you might be wondering how you’ll cover your medical expenses. As you age, your medical expenses inevitably start to rise. In fact, a healthy, 65-year old couple can expect to spend close to $390,000 over the course of their retirement for healthcare expenses and Medicare premiums. Although health costs can be calculated as part of the distributions you take from various workplace retirement accounts, you can also plan for medical expenses by using a Health Savings Account (HSA). 

What is an HSA?

A Health Savings Account (HSA) is a tax-advantaged savings account that can be used for qualifying medical expenses. You have the ability to open an HSA when you are enrolled in a High-Deductible Health Plan (HDHP) through your insurance provider. The idea behind your HSA is that, although your insurance may have higher costs and copays, the contributions you make to your HSA can cover any out-of-pocket expenses you may incur. 

While your HSA can be incredibly valuable year-to-year as you make contributions, it can also be a useful tool to leverage during retirement. In 2020, you can contribute up to $3,550 (individuals) or $7,100 (families). All of these contributions are tax-deductible, and the funds in your HSA grow tax-free. When you use the funds in your HSA, you aren’t taxed on the withdrawals, either. 

How Can Your HSA Be Used in Retirement?

The most important benefit of your HSA is that the funds you contribute roll over from year to year, so you can continue to accumulate them until you retire. The funds can sit untouched as long as you want, and you own your HSA - not your employer. So, even if you change jobs or retire, your funds (and your account) are yours to use as you please. 

During retirement, you can use your HSA for:

  • Co-payments
  • Medicare premiums
  • Dental care
  • Eye exams, contacts, and glasses
  • Hearing aids
  • Prescription medication
  • Hospital bills
  • X-rays
  • Alternative care (like physical therapy, massage therapy, and chiropractic care)
  • Wheelchairs, walkers, and canes

These are just a few of the qualifying medical expenses that your HSA covers. 

HSA Rules to Keep In Mind

Keep in mind that, if you open and plan to use an HSA, there are a few rules to follow:

  1. You can’t continue to contribute to your HSA after age 65 unless you are still employed and not enrolled in Medicare..
  2. If you’re over age 55, you can contribute an extra $1,000 to your HSA each year. This can be a huge benefit to boost your medical savings fund as you get closer to retirement.
  3. When you enroll in Medicare, you’re no longer eligible to contribute to your HSA.
  4. If you’re claimed as a dependent on someone else’s tax return, you aren’t eligible to contribute to an HSA. 

Building a Retirement Plan?

Are you building a plan to pay for your lifestyle and medical expenses in retirement? Don’t go it alone! Get in touch with us today. We’re here to support you through your retirement transition. 

Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.

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