Before answering the question, let’s make sure we’re all on the same page with how Health Savings Accounts (HSAs) work: HSAs are funded with pre-tax income, meaning you don’t pay taxes on the amount you deposit into your HSA; HSA funds can then be used to pay for noncovered, qualified medical expenses like copays, deductibles, vision and dental care, etc.
To be eligible to contribute to an HSA, you must be covered by a high deductible health insurance plan (defined as an annual deductible of $1,350 to $6,650 for individual coverage, and an annual deductible of $2,700 to $13,300 for family coverage).
While the most obvious way to take advantage of an HSA may be to pay for current medical expenses with pre tax dollars, HSAs can also be used as a way to save for retirement. Particularly for folks whose income may disqualify them from making deductible contributions traditional IRA or utilizing a Roth IRA, an HSA can potentially provide you with additional tax-advantaged retirement savings capacity.
The reason HSAs can be considered retirement savings vehicles is that not only can funds contributed to an HSA account be saved and used to pay for medical expenses in retirement, but after age 65, you can use HSA funds penalty free for nonmedical expenses as well.
What’s more, within an HSA, you have the ability to invest in the same types of investment options available in 401(k)s and IRAs, like index funds, mutual funds, exchange traded funds, etc. This means your HSA account can be invested to be part of your overall portfolio positioned for retirement.
Of course, how your overall retirement savings portfolio should be invested and allocated is a whole different topic. And whether saving into an HSA for retirement purposes makes sense for you depends on many factors related to your current and expected future financial situation. Need financial advice tailored to specifically to you? Contact us at 512-649-2383, or firstname.lastname@example.org, or book an initial consult with us here!