HSA: A tool for retirement savings
A health savings account (HSA) is a great tool to help you prepare for future health care costs, retirement, and help you to save on taxes.
Boost your retirement income with HSA savings
If you’re like most people, you may think about your HSA solely as a way to pay for current-year qualified medical expenses, such as trips to the doctor or prescriptions. But did you know it can also be used as a long-term investment vehicle that can play an even greater role in your overall wealth and retirement strategy?
You can use your HSA with other retirement accounts to maximize your after-tax retirement income. Saving in an HSA for retirement gives you a tax-advantaged account dedicated to future medical expenses — allowing you the opportunity to avoid dipping into retirement accounts intended for cost-of-living expenses. Also, HSAs are a great way to pay for qualified medical expenses in retirement.
Get ahead on taxes in more ways than one
HSAs are triple tax advantaged, making them an effective savings and investment account:
- Withdrawals for qualified medical expenses are income tax-free.
- All contributions to an HSA are income tax-free.
- Any interest earnings and investment growth from deposits are income tax-free.
Unlike other accounts, an HSA is one of the only savings vehicles that allows you to add money on a before-tax basis through payroll contribution, grow your savings tax-free (interest and investment earnings are not taxed), and take the money out income tax-free for qualified medical expenses.
With a 401k, you’ll always pay taxes when you withdraw funds, but if you use HSA funds for qualified medical expenses — it’s generally 100% income tax-free. Plus, after turning 65, you can use your HSA funds for non-qualified expenses. You’ll pay ordinary income tax on those funds, but the 20% tax penalty no longer applies.
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Are you prepared for health care costs in retirement?
Learn how your HSA fits into retirement planning with the HSA Retirement Guide.
Fill in the gaps of medical costs
HSAs and Medicare
It's important to max out your HSA now: once you enroll in Medicare, you can no longer contribute to your HSA — but you can still use your HSA funds income tax-free to pay for qualified medical expenses. You can also use your HSA to pay for Medicare premiums and qualified out-of-pocket expenses, including deductibles, copays and coinsurance for:
- Part A (hospital and inpatient care)
- Part B (doctor and outpatient care)
- Part D (prescription drugs)
Catch-up contribution
Once you turn 55, you can contribute an additional $1,000 each year to your HSA, called a catch-up contribution. If you and your spouse are both over the age of 55, you can each contribute an additional $1,000. Your spouse will just need to open their own HSA for their additional portion.
Your HSA savings can really add up. If you can contribute $3,000 a year, you’d get over $1,000 in tax savings. Do that for five years, and you’d have $15,000 in your account plus over $5,000 in tax savings.*
Maximize your savings by investing
Investing HSA dollars has many potential tax benefits and can be an additional way to save for long-term health care expenses and financial goals. Once your HSA reaches a certain designated balance, typically $2,000, you may choose to invest a portion of your HSA dollars.
* Results and amounts will vary depending on your particular circumstances. This example assumes individual is in 25% federal tax bracket and 5% state tax bracket.
Investments are not FDIC insured, are not guaranteed by Optum Financial or its subsidiaries, and may lose value.
Self-directed mutual fund investment options are made available through the services of an independent investment advisor, or your plan sponsor. Discretionary advisory services are provided by Betterment LLC, an SEC-registered investment adviser, with associated brokerage transactions provided by Betterment Securities, Member FINRA/SIPC. For details and disclosures visit betterment.com. The Schwab Health Savings Brokerage Account is offered to certain account holders through Charles Schwab & Co., Inc., Member FINRA/SIPC. For details and disclosures, visit schwab.com. Brokerage services are offered to certain accountholders through TD Ameritrade, Inc., Member FDIC/SIPC and a subsidiary of The Charles Schwab Corporation. For details and disclosures, visit tdameritrade.com.
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Health savings accounts (HSAs) are individual accounts offered through Optum Bank®, Member FDIC, or ConnectYourCare, LLC, an IRS-Designated Non-Bank Custodian of HSAs, each a subsidiary of Optum Financial, Inc. Neither Optum Financial, Inc. nor ConnectYourCare, LLC is a bank or an FDIC insured institution. HSAs are subject to eligibility requirements and restrictions on deposits and withdrawals to avoid IRS penalties. State taxes may apply. Fees may reduce earnings on account.
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