Health Savings Accounts (HSAs) for Retirement

 Most individuals think of IRAs and 401ks when the topic of retirement savings comes up.  More and more Americans are looking to an additional option to aid in their retirement goals.  One such savings vehicle that is gaining traction is a health savings account (HSA).

HSAs are designed for to be used to pay for qualifying healthcare expenses. You can contribute pre-tax money and use it towards medical costs whenever you want. There are no “use-it-or-lose-it” rules and any unused funds will roll over year to year.  Also, some providers allow participants to move a portion of their savings into an investment account in efforts to achieve a better return on the money held within the account.  The part of these vehicles that makes them very appealing is what is referred to as “a triple tax benefit”.   As you put money into the account, it is tax deductible, as it grows, the earnings are tax-deferred and you can take it out tax free, if used for qualified medical expenses.

Should you need to access these funds, withdraw money from the account, for non-healthcare expense before the age of 65, you’ll pay a 20 percent penalty.  After age 65 you can withdraw your HSA funds for non-qualified expenses at any time although they are subject to regular income tax.   That’s why HSAs can be an appealing retirement-savings tool.

You can only contribute money to an HSA if you have a high-deductible health care plan (HDHP), one that offers a lower monthly health insurance premium and a high deductible. If an HDHP makes sense for you and you decide to open an HSA, the contribution limit for 2017 is $3,400 per year if you’re single and $6,750 per year if you have a family. If you’re 55 or older, you can make an additional $1,000 “catch up” contribution.  Some employers will make a contribution into this account for its employees, only further driving the benefit of such an account.

HDHP’s are not well suited for someone on medications, have a chronic illness, or you might be going to the doctor frequently over the course of a year.

Ryan Stroschein
Chief Financial Officer