Posted on Feb 16, 2024

Jordan and Lisa both had high-deductible health plans (HDHPs) with Health Savings Accounts (HSAs) through their employers. Throughout their working years, they diligently contributed to their HSAs while maintaining a cash cushion to cover their immediate medical expenses. Upon reaching retirement, they found their HSAs had grown significantly, providing them with a tax-advantaged source of funds for medical expenses. Additionally, as they turned 65, they were able to use their HSAs for non-medical expenses, subject to income tax but without penalty. This allowed them to supplement their retirement income while enjoying the flexibility of HSA funds.

HSAs can serve as a valuable tool for supplementing retirement savings, providing triple tax advantages. Contributions to an HSA are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free at any age. Unlike other account types, you can invest your contributions in stocks and bonds to build a retirement nest egg, just like a 401(k). In addition, an HSA stays with you even when you change jobs or retire.

Here are ways to maximize HSA savings for retirement while also addressing future healthcare costs:

  • Contribute the maximum allowed each year by the IRS. In 2024, the maximum is $4,150 for individual coverage and $8,300 for family coverage, with an additional $1,000 catch-up contribution if you’re age 55 or older.
  • Maintain enough cash in your HSA account to cover short-term medical expenses, and invest the rest in a diversified portfolio for long-term growth.
  • Use HSA funds to bridge the gap to Medicare if you retire before age 65. You cannot contribute to an HSA once you enroll in Medicare. However, you can use your HSA funds for qualified medical expenses at any age.
  • Leave an inheritance to your spouse, who can then use the HSA for their own medical expenses.

This material is provided for informational purposes only, and is not intended as authoritative guidance, legal advice, or assurance of compliance with state and federal regulations.

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