Retirement

HSA for Retirees

Covering the Medicare gap

Medicare will not cover all medical expenses after retirement. An HSA, when managed properly, is a great option to cover the expenses that Medicare will not. Additionally, an HSA can be used to pay for dental, vision and hearing expenses, which may not be covered by Medicare.

HSAs vs. other retirement accounts

HSAs provide the greatest amount of tax relief of any account type for the following reasons:

Contributions are tax free

Withdrawals for medical expenses are tax free, and any unused funds roll over from year to year. So, with HSAs you’re basically building up a retirement fund that can be used for medical expenses down the line, while saving on taxes today.

Earnings are not taxed

Any interest, dividends or capital gains earned on your contribution are completely tax-free. This means that with HSAs you can grow your savings even faster without paying taxes.

When used for qualified medical expenses, distributions are not taxed

When you decide to leave your job or change health plans, you can take your funds with you and use them as needed. And if you don’t need the money right away, they can stay in the account until retirement, when they are tax-free again.

Remember these HSA Retirement Benefits over other accounts

HSAs offer a major advantage when saving for retirement. With 401(k)s, all money withdrawn after reaching the age of 59 ½ is subject to income tax. However, with HSAs, all withdrawals used to pay for qualifying medical expenses are always tax-free—even in retirement.

Because you can use your HSA to pay for medical expenses at retirement, it can provide you with a ‘free’ source of income. In addition, any money left in your HSA at the end of the year rolls over to the next year—unlike most 401(k)s, where contributions are limited and can’t be rolled over.

HSAs also offer more flexibility when it comes to planning for retirement. With a 401(k), you’re required to begin withdrawing funds at the age of 70 ½, regardless of your financial situation. With an HSA, however, withdrawals are tax-free and aren’t required until after turning 65. This means you can decide when to withdraw money based on your particular financial situation, rather than a predetermined age.

Finally, HSAs provide several tax advantages that make them an attractive retirement savings option. Contributions to your HSA are tax-deductible (up to the annual contribution limit set by the IRS). Additionally, any earnings and interest you earn in the account are not subject to taxes, meaning that you can use your HSA funds to grow your retirement savings in a tax-advantaged way.