Can An HSA Or Health Savings Account, Be Used In Retirement?

By: Frank Makrides

Updated on October 17, 2020

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When I first started looking into HSAs or health savings accounts, I thought they could only be used for medical purposes, but little did I know at the time that they could be used for so much more. After years of research, I realized that not only can they be used for their primary purpose to help you pay for medical-related needs but Health Savings Account (HSA) is a powerful vehicle for a retirement investment, tax strategy, overall health and financial wellness planning standpoint.

What is an HSA or health savings account?

An HSA or health savings account is a tax-advantaged medical savings account available in the United States, typically offered to individuals enrolled in high-deductible health care plans.

When you fund an HSA account, those funds go in federally tax-free. The best part of HSA accounts is that if you don’t use your funds, you don’t lose them, they keep rolling over year after year. You own your HSA, the money in it, how you plan on using the money in it and how you want to invest in it.

For more information on HSAs please watch the YouTube video below that goes into more details on the mechanics and how HSAs work.

Learn more about Health Savings Account (HSA), click the link to the HealthCare.gov website for more information.

What medical expenses are covered by an HSA?

This list below is not all-inclusive and might not be accurate due to constant changes in laws and regulations. Please use this list as a good starting point and guide for you get a general understanding of what types of medical expenses you can use with your HSA:

Acupuncture, Alcoholism, Ambulance, Annual Physical Exam, Artificial Limbs, Artificial Teeth, Bandages, Body Scans, Braille Books, Breast Pumps and Supplies, Capital Expenses (improvements to your property like ramps, supporting rails and other structures), Chiropractor, Contact Lenses, Crutches, Dental Treatments, Drug Addiction, Drugs, Eye Exams, Eye Glasses, Fertility Treatment, Guide Dog, HMO, Hearing Aids, Home Care, Hospital Services, Insurance Premiums, Medicare, Lab Fees, Lead-Based Removal, Lodging, Long-Term Care, Nursing Home, Operations, Optometrist, Pregnancy Test Kit, Psychiatric Care, Special Education, Stop Smoking Programs, Surgery, Therapy, Transplants, X-rays

For a more detailed list of qualifying medical and dental expenses, click the link to the IRS publication.

What type of investments can I have in an HSA?

HSAs have similar investment options to IRAs. This includes stocks, bonds, funds, money market options and so much more.

In an HSA a good idea to use?

It all depends. If you qualify the tax-free savings and options are something you should definitely consider. With ever-rising costs in medical expenses and future tax uncertainty, having a safe haven for your hard-earned money to grow tax-free for medical and tax-deferred if taken out in retirement is a must option for most people in their financial planning. Another thing to consider is your overall health. If you or someone or a dependent incur recurring health-related expenses, then an HSA is another good reason to consider having one. Why pay out of pocket, when you can take advantage of the tax incentives of an HSA. Make your money work harder and smarter with you by planning your overall budget. If you don’t have your budget or expenses in order, please check out my dedicated page along with free tools for you to get quickly get your budget in order today.

Can I open an HSA on my own?

Yes, you can open a health savings account (HSA) even if your employer doesn’t offer one. You can only make contributions if you are covered by an HSA-qualified health plan first.

If you happen to meet the requirements, our number one recommended HSA provider is Lively. They offer HSAs for individuals or families. Please check them out below if you’re looking to get started and learn more about HSA options with Lively.

#1 Rated For Health Savings Accounts

100% free health savings accounts for individual and families. Their modern HSA platform helps you maximize your health care savings! Lively helps people prepare for tomorrow by making smart decisions about finances and healthcare today. Whether you’re an employer or an individual, Lively offers a simple to use HSA platform for you. Try Lively today.

Try Lively

What happens to my HSA in retirement?

If you use your HSA funds in retirement for allowable medical expenses you get a triple tax benefit. You can use your funds in your HSA before and during retirement completely tax-free. You can withdraw your funds from an HSA for non-medical related reasons. Just like an IRA, you will pay taxes on your withdrawals in retirement if you don’t use them for medical expenses. The advantage though is that your funds were put in tax-free and grew tax-deferred.

HSA tax advantage summary

HSAs offer triple tax benefits. Your initial contributions are pre-tax dollars so they’re not subject to federal taxes. Secondly, you pay no taxes on the earnings, gains or dividends. If you withdraw the funds for medical expenses, they’re not subject to tax, ever. If you do withdraw your funds in retirement, they are subject to taxes just like they would be in an IRA or 401k.

Health Savings Account (HSA) tax rules. Please click the link to the IRS website for additional information.

Summary

HSAs, if used properly, are an amazing vehicle to provide you a way to pay for your medical expenses, tax-free and if never used can be treated just like an IRA for ordinary withdrawals in retirement. They should also be strongly considered if you or a dependent have recurring qualifying medical expenses. Taking advantage of the HSA tax benefits will ultimately benefit your bottom line. Even if your employer does not offer HSAs, there are third parties that can offer you these services and benefits, so take advantage of them today.

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Frank Makrides

Is a former financial technology industry executive, licensed realtor, real estate investor, an award-winning speaker, has been published, holds multiple patents and is passionate about all things personal finance and entrepreneurship. He is also a proud husband and father of 2 amazing children.