Episode 079

How to Use a Health Savings Account to Boost Your Retirement

The COVID-19 pandemic has changed the way many individuals view their healthcare benefits. Through these difficult times, many are beginning to understand the importance of being prepared for any unexpected health costs. While many obtain health insurance policies through work or the exchange, people still find themselves having large out-of-pocket expenses. Recently there has been an increasing demand for HSAs since consumer driven healthcare continues to grow. An HSA, short for health savings account, is a great tool to take advantage of. Normally, after setting up health insurance through an employer or the exchange, you have a deductible. This deductible is the amount you’ll have to pay before your insurer kicks in with their share of an insured loss. This is why it is so important that you understand all of the features of your health insurance policy. An HSA is not something used by itself, usually it’s an account you’re eligible to obtain if you have a high deductible health plan (HDHP). Employers present a variety of health plan options, some ow which are considered HDHPs. So, if enrolled in one, you are then eligible to open an HSA. However, this type of account isn’t in demand simply because they’re designed to cover health expenses, but also because of its lesser-known benefits that come with owning one.

The Benefits of an HSA

One reason plenty of financial advisors favor HSAs is because they allow you to contribute money on a pre-tax basis. No taxes are paid on any contributions if they’re done through your employer. These contributions are taken from your paycheck and are put directly into your account. If contributions are done on your own, that amount contributed can be deducted from your gross income on your tax return. Another great reason to take advantage of an HSA is if you ever need to use funds to pay for qualified medical expenses, you’ll be able to withdraw those funds tax free. Also, with an HSA, you’ll have investment options like mutual funds in a 401k. Of course, with any investment option like this, your money has the potential to grow over time. If the money invested grows, and is later used for qualified medical expenses, there will still be no taxes associated whatsoever. Luckily, the money in the account is yours even if in the future you are no longer with the same employer. Plus, any amount not spent one year will always rollover to the next.

Families also benefit greatly from HSAs because of its flexibility in covering the account owner’s dependents. An important detail to take note of is, if before the age of 65 you decide to withdraw funds and not use them for qualified medical expenses, you are subject to pay an income tax and an additional 20% penalty. However, after the age of 65 you’re not necessarily required to use funds for medical expenses at all. After this age, withdrawals are only subject to income tax, similar to an IRA. In essence the HSA is like a double-edged sword. Remember, withdrawals are tax free if used for qualified medical expenses. If you never end up needing it for this, you’re able to withdraw funds at retirement age having only paid income taxes. Talk about a great tool for retirement!

Understanding Eligibility and Contributions

                Unfortunately, there are some disqualifiers making you ineligible to open an HSA. For example, those enrolled in Medicare, veterans receiving TRICARE, and those already claimed as dependents. Assuming that you are qualified, there exist limits on the yearly contributions one can make. Currently, the limits are $3,600 for self only coverage, and $7,200 for family coverage. But before considering how you can benefit from having an HSA, speak to a financial planner about whether you qualify and how to get enrolled. And like with other accounts, you may discover reasons why an HSA is not right for you. If this is the case, a financial planner can always help guide you towards your next best option.


In this episode, Luis talks about the following and more:

  • What a Health Savings Account is.
  • Who Qualifies for an HSA.
  • Contribution Limits to HSAs.
  • The Tax Advantages of HSAs.