A retired couple going for a walk

HSA: A Retirement Savings Vehicle

After you retire you can use your Health Savings Account. Let’s breakdown everything you need to know about using your funds later in life.

What happens after you retire?

Once you enroll in Medicare Part A and/or Part B, you can no longer contribute to your HSA. But that does not mean you can no longer benefit from your HSA and the funds available within it. The money is still yours, and it could be a considerable amount if you’ve been building it over a number of years.

  • Continue to use your HSA for medical expenses – Use your saved funds to cover eligible medical expenses, and even extra out-of-pocket expenses, like deductibles, copays, and coinsurance. Also use it for non-Medicare covered expenses, like dental care, eye care, and hearing aids.
  • Use HSA funds for long-term care – Often Medicare will not cover long-term care, like in-home care or a nursing home. Your HSA funds are a good solution to cover those costs. If you wish to purchase long-term care insurance, you may also use your HSA funds to cover the costs of premiums. There are limits to the amount you can withdrawal tax-free for this purpose with your HSA, depending on your age.
  • 20% tax penalty doesn’t apply – Prior to retirement, using your HSA funds for non-medical expenses requires you to pay income tax plus a 20% penalty. After you turn 65 that 20% penalty no longer applies, allowing you to use your HSA funds however you want. You’ll still pay income tax, which is similar to how a traditional IRA works when withdrawing money. Using your HSA funds for medical expenses after age 65 will still be eligible as tax-free.
  • Allow your HSA to grow – While you can use your HSA funds more freely in retirement, it still may be wise to save it for future medical expenses. Aging often correlates with increased medical expenses. Allow your HSA funds to grow through interest or HSA investment option, which could benefit you for years to come.

Catch Up Contribution Period

Once you turn 55, you can contribute an additional $1,000 each year to your HSA, on top of the yearly maximum amount. This is called a catch-up contribution. If you and your spouse are both over the age of 55, you can each contribute an additional $1,000. Your spouse will just need to open his or her own HSA to qualify.

HSAs and Medicare

It's important to maximize your HSA contributions before you retire. Once you enroll in Medicare you can no longer contribute funds to your HSA. Even during retirement you can still purchase qualified medical expenses that are tax free. You can also use your HSA to pay for Medicare premiums and qualified out-of-pocket expenses including deductibles, copays and coinsurance for:

  • Part A (hospital and inpatient care)
  • Part B (doctor and outpatient care)
  • Part D (prescription drugs)

Open An HSA

Please consult your Tax Advisor.