HomeResourcesArticles
May 24, 2023

How to use an HSA now and in retirement

Latia Murray
Latia Murray
Content Marketing Writer

It’s true that Health Savings Accounts can pay for medical expenses now, but the most powerful tax advantages and benefits come from saving the balance for later, even into retirement.

With the growth in HSA popularity over the last few years, anyone looking for employee benefits has read about or heard of the triple-tax advantage that only an HSA can offer. (If you haven’t, it’s worth learning about. Read more about it in this article.)

So, after all of the hype around the triple-tax advantage, the questions become:

First, what medical expenses are covered by an HSA?

An HSA helps High-Deductible Health Plan users pay for out-of-pocket medical expenses. Of course, “out-of-pocket” is a vast category, so let’s break it down.  The IRS has an extensive list of HSA-qualified medical expenses, including emergency, dental, vision, and other everyday family medical expenses like copays and immunizations. The list has also expanded to include many over-the-counter medications, first aid supplies, and other common items. The list is too long to include here, but check out our interactive list for items you’re curious about. Covered expenses are checked off the list, so the second question is:

Why do I need to save my balance for later if I can buy all of these things now?

Healthcare and everyday over-the-counter items aren’t going to get cheaper before you retire, and a common misconception is that Medicare will cover those expenses after retirement. It won’t.

Unlike the traditional practice of saving for college with a 529, until recently, medical expenses haven’t been a consideration for families when planning for the future. But HSAs are filling that gap and becoming the savings vehicle for future medical expenses.

A Fidelity Retiree Health Care Cost Estimate recently reported average retired couples, age 65, in 2022 would need approximately $315,000 saved (after tax) to cover health care expenses in retirement. 

For the majority of Americans who bring home $58,563 on average per year, that’s a steep number. This is where an HSA’s triple-tax advantage can offer the most value.

What are the benefits of using an HSA for retirement planning?

Remember, funds are contributed pre-taxed. No taxes are paid on earnings, and money can be withdrawn tax-free for qualified medical expenses.

This means money can be withdrawn and used for qualified medical expenses now or in retirement, but there are a few more valuable points to consider when using an HSA for retirement planning:

  • The balance can be invested and grow tax-free to carry over year after year.
  • Funds can be used after age 65 for nonmedical expenses without the 20% penalty. (Ordinary income tax rates still apply, just like a 401k or IRA .)
  • The balance can be used to pay for insurance premiums when retiring early.
  • It can also be used to pay for supplementary insurance and expenses since Medicare doesn’t cover 100%.
  • An extra $1,000 over the annual HSA limits can be contributed to the account after age 55.
  • An HSA can become part of your estate planning. When a spouse is the designated beneficiary, the HSA becomes theirs when you die without incurring taxes.
  • There is no minimum required distribution for HSAs like there is for a 401k or IRA.

Learn more about adding an HSA to your benefits portfolio by requesting a proposal.

What’s in this article?

Other Recent Posts
Employee benefits play a pivotal role in attracting and retaining top talent while fostering a positive work culture. However, designing a comprehensive benefits strategy requires careful consideration, especially within the regulatory framework of laws like the Consolidated Appropriations Act. In this article, we’ll explore the essential steps to creating an effective employee benefits strategy while...
Following the success of our webinar, Telescope Health and the CAA, which delved into the implications of the Consolidated Appropriations Act (CAA) for employers, it became evident that attendees departed with a host of questions. In response, this article is dedicated to addressing those inquiries, to help foster a deeper understanding of the intersections of...
The Consolidated Appropriations Act (CAA) was passed in 2021, and although it brought significant changes that will continue to impact employers offering group health insurance and their employees, many organizations still haven’t made changes to meet the mandates. What are the key requirements of CAA legislation that employers need to act on? Gag Clause One...
Stay Updated

Join us to stay on top of the latest healthcare news, legislation and product features from Ameriflex

We value your privacy
We will not rent or sell your information