Making the most of HSAs: How Health Savings Account Work When Your Retired

Health Care: Largest Cost for Retirees

Health care costs can be one of the most significant expenses for retirees.  With planning and resources, retirees can assure that their health care expenses are covered. 

Can I use my HSA when I am Retired?

(1) You can use money you’ve accumulated "tax-free" in an HSA (**when HSA has been established pre-Medicare enrollment - before age 65) for eligible medical expenses at any time. 

(2) After age 65, you can withdraw money from an HSA "tax-deferred" as an investment (**when HSA has been established pre-Medicare enrollment) or "tax-free" to pay eligible medical expense.   

(Source: Can I have a health savings account and Medicare?  AARP)

Can I enroll in an HSA when I am enrolled in Medicare?

No. 

Enrolled in an HSA before age 65?  HSA funds to pay for qualified medical expense after age 65? 

Yes. 

What is a Health Savings Account (HSA)?

An HSA is a tax-advantaged financial account with funds that can be used for qualified medical expenses. Contributions to an HSA can be made on a pre-tax basis, allowing retirees to save more money on their taxes. 

Funds in an HSA can be used for a variety of medical expenses, including: deductibles, copays, prescriptions, and more. 

Funds in an HSA can be invested, and any returns can be used to cover medical expenses. 

When Can I Invest in an HSA?

To contribute to an HSA you must meet three criteria:

- You must NOT be enrolled in Medicare;

- You must not be claimed as a dependent on someone else’s taxes;

- You must be enrolled in a qualifying high-deductible health insurance plan with no other form of health insurance.  "IRS defined a high deductible insurance plan as one with a deductible of at least $1,400 for an individual or $2,800 for a family".

"Someone who wants to keep making contributions after retirement can do so by either not enrolling in Medicare or by withdrawing from the program."  (Important Note: **consult your advisor - neither option makes sense...) 

(Source: "Can I Contribute to an HSA?"  SmartAsset.com)

Tax Advantages of an HSA

- Money can be deposited into your HSA pre-tax. 

- Money in the account grows tax-deferred as long as the funds remain in the account. 

- Funds you withdraw from the account to pay for qualified medical expense remain tax-free. 

(Source: 4 HSA Benefits You Don't Want to Miss Out in Retirement)

What Retirement Medical Expenses, can HSA Funds be Used to Cover?

- Medicare Part B, Part D, and Advantage premiums (Important Note: **for funds saved pre-medicare enrollment in your HSA)

- Out-of-pocket health care expense (**for funds saved pre-medicare enrollment in your HSA).  You don't need to take the money out in the same year that you face the cost.  As long as you keep good records, you can pay your medical expenses out of pocket, then reimburse yourself from your HSA. 

- In-home nursing care, retirement community fees for lifetime care, long-term care services, nursing home fees, and meals and lodging that are necessary while obtaining medical care away from home. 

- You can even use your HSA for aging modifications to your home, such as ramps, grab bars, and handrails, that make your home easier to use as you age.

- When you turn 65, you can withdraw funds from the HSA account to use for any purpose, and have it taxed similarly to a withdrawal from a traditional IRA

(Source: 4 HSA Benefits You Don't Want to Miss Out in Retirement)

You Own your HSA

You own your HSA. Your entire balance rolls over every year—even if you change health plans, retire, or leave your employer.

Future of HSA for Seniors? 

Health Savings for Seniors Act introduced in the House (04/07/2022) is a legislative effort to allow individuals on Medicare to contribute to HSAs. At the writing of this blog, this bill has not yet been authorized. 

Call to Action: Optimizing Your HSA

Explore with your Financial Advisor how to optimize your HSA. 

**Tax Laws and individual requirements change.  Always consult with your Tax and HSA Advisor. 

                                                Photo: L. Cook.  Southern Colorado Sunset.

RESOURCES THAT MIGHT BE HELPFUL..

Can I have a health savings account and Medicare?  Kimberly Lankford.  AARP.  Can You Have a Health Savings Account and Medicare? (aarp.org)

4 HSA Benefits You Don't Want to Miss Out on in Retirement.  Chuck Saletta.  TheMotleyFool. 4 HSA Benefits You Don't Want to Miss Out on in Retirement (msn.com)

Can I Contribute to an HSA After I Retire?  Eric Reed. SmartAsset.  Can I Contribute to an HSA After I Retire? | SmartAsset

Health Savings Account Savings Calculator. First America Bank. HSA Calculator | Calculate Health Savings Account | First American (firstambank.com)

About Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Internal Revenue Service. About Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans | Internal Revenue Service (irs.gov)

Retirement Uses for Your Health Savings Account (HSA).  Amy Fontinelle.  Retirement Uses for Your Health Savings Account (HSA) (investopedia.com)

SO...What'd we miss??

Your experience with a Health Savings Account?