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by Kelly Whelan

Saving money for retirement can be challenging, but there’s a great way to add to your nest egg that many people don’t take advantage of — a health savings account. Health savings accounts (or HSAs) are plans that allow you to sock away money pre-tax for your medical expenses. But did you know they also act as a mini-retirement account? Here’s how.

Medical Expenses in Retirement

HSAs are known for letting you save up for medical expenses with pre-tax dollars, tax-free distributions, and no tax on earnings. They make it simple to pay for your yearly medical deductible, copays, and medication costs, or you can save them for future medical expenses. That means you can use them to cover care that you may require as you enter retirement.

Pay Yourself

What if you end up being healthy in retirement or run into some financial road bumps and need some cash? Turns out you can take distributions from your HSA plan anytime. Distributions for eligible medical expenses are always tax free and penalty free. Also, after you turn 65, some HSA distributions will still incur a tax, but all distributions will be penalty free.

Give your HSA

You may end up passing your HSA funds to your heirs. If you have been diligent saving money for retirement and don’t use  your HSA funds before you pass away, your beneficiary (or beneficiaries) would inherit those funds.

Compound Interest

If you’re looking at the long-term benefit, the younger you are, the better. Compound interest and increasing contributions could help someone in their early 20s grow their HSA nest egg to as much as a million dollars! The older you are, the harder it will be to reach those amounts, but an HSA can still provide a nice supplement to your other retirement savings.

"Free" Money

Many employers now put funds into your HSA on your behalf. That could be 'free' money you are leaving on the table without a HSA plan.

HSA Benefits:

While using your HSA for retirement savings may make sense, it's also helpful to know the benefits of HSA plans.

There are no requirements to take withdrawals, so you can let your money grow until you need it. 

A HSA is considered ‘triple tax-advantaged.’ This means:

  1. Contributions are made before-tax
  2. Earnings when invested are not taxed
  3. Withdrawals are not taxed (when used for eligible medical expenses)

HSA Drawbacks:

While the benefits of HSAs and the appeal of an additional account used to save for retirement are high, there are some drawbacks.

The main one is that you must be enrolled in a high-deductible health plan to contribute to an HSA. For some people this may be too costly since they have regular (or expensive) medical needs. For others, they may not have the funds to pay out of pocket for medical expenses AND contribute to a HSA plan. Lastly, some people prefer the stability of a more traditional healthcare plan in case of emergencies.

While using a HSA plan isn’t for everyone, if you do have access to one and use it to save, it may provide another tool to help make retirement easier. 


Disclaimer: All content in this presentation is for informational purposes only and is not intended to provide tax, legal, insurance, investment or other financial advice. No part of this presentation should be construed, explicitly or implicitly, as an offer to sell, a solicitation of an offer to buy, an endorsement, guarantee or recommendation for any financial product or service.