How HSA Funds Can Help with Your Retirement

Though usually thought of only as a vehicle to help pay for out-of-pocket medical expenses, an HSA is also an effective means of saving money for retirement. It may even be superior to a 401(k) for some employees.

To qualify for a Health Savings Account, an employee first must have a high-deductible health plan and must not be enrolled in any other health coverage or be qualified for Medicare. A participating employee may also not be claimed as a dependent on anyone else’s tax return. Contributions to the HSA can either be made by the employer or employee – or both. Employee’s contributions may be made via payroll deductions, or an employee may contribute to the HSA on their own. Any contributions made by the employee are pre-tax.

HSAs were initially designed to be used for covering out-of-pocket medical costs. But since funds in these accounts are deposited tax-free, grow tax-free and are withdrawn (for qualified medical expenses) tax-free, there is no other savings vehicle like it. Employees are realizing the advantages and are diverting funds from their 401(k) over to their HSA to utilize this triple tax advantage.

Key Takeaways for HSA Funds

Funds for retirement can grow even farther tax-free if an employee is able to refrain from spending funds in their HSA during years of employment and by maxing out their contributions.
High Deductible Health Plans (HDHPs) required to qualify for an HSA, often have lower monthly employee premiums.
Unlike a Flexible Spending Arrangement (FSA), employees retain the funds in their HSA if not used in a calendar year and if they change jobs.
Even during early retirement, an employee can continue to contribute to their HSA until they enroll in Medicare if they meet the other requirements.
Consider accumulating HSA funds for use in retirement as a part of a long-term savings strategy due to the investment opportunity and accompanying tax advantages.

Best Practices

Since the HSA provides a triple tax advantage, it’s usually a good idea to max out annual contributions whenever possible. In 2022, the maximum HSA contribution for an individual is $3,650 or $7,300 for a family. For those people 55 and older, they are permitted to contribute an additional “catch-up” contribution of $1,000 per year. Also, even if someone is no longer employed after age 55, they can continue contributing to their HSA as long as they meet the requirements—until they become eligible for Medicare.

Learn More About HSA’s

At benefEx, we are eager to be of service to you, sharing what we know as industry leaders with decades of experience in the insurance business. Contact us today to learn more about Health Savings Accounts and High Deductible Health Plans to craft the best benefits plan for your company.