Saving for retirement with an HSA
Building your HSA balance
For 2013, you can contribute $3,250 if you have self-only coverage or $6,450 if your family is covered. And, if you’re 55 or older, you can contribute an additional $1,000.
Advantages of a health savings account:
- Your money remains in your HSA from year to year until it’s used – it’s not “use-it-or-lose-it.”
- Money accumulates tax free with interest paid on those dollars that have not been invested.
- Funds can be withdrawn tax free to pay for eligible medical expenses (see detailed list)
or insurance premiums for Medicare health plans, long-term care insurance and certain health care coverage
- HSA funds are a great way to pay for medical expenses after you retire
- HSA funds can be invested in mutual funds and other investments for additional growth potential after they reach $1,000
- Funds can be used for non-eligible expenses, but taxes and penalties apply
Strategies for retirement savings
One of the most important long-term reasons for having an HSA is to save money for medical expenses during retirement. An HSA is the best way to save money for medical expenses during retirement.
HSAs allow you to make withdrawals tax-free to pay for eligible medical expenses. You can make withdrawals before and after age 65.
Strategies to maximize your HSA:
Strategy 1: Make the maximum allowed contributions to your HSA at the beginning of each year. Even though you have until April 15 of the following year to make HSA deposits, you can take advantage of the tax-free growth in your account by funding it as soon as possible. Over decades, you could accumulate tens of thousands of additional dollars with this strategy alone.
Strategy 2: Delay withdrawing money from your HSA as long as possible. You have the option of paying for your medical expenses out of pocket and leaving your money in the HSA so it grows tax free. You may reimburse yourself from your HSA at any future time to pay for eligible medical expenses you incur today. Be sure to save your receipts.
Strategy 3: Place your HSA funds in mutual funds or other investments that offer growth potential.*
- A 45-year-old couple contributes $5,450 annually to their HSA for 20 years and earns a 6 percent return on their investments.* They incur $2,000 a year in eligible medical expenses. If they withdraw $2,000 from their HSA each year to reimburse themselves, in 20 years they will have $134,525 in their HSA as they begin their retirement.
- If the same couple delays withdrawing the $2,000 each year until after they retire, they’ll have $212,510 in their HSA at age 65. They can then reimburse themselves for medical expenses incurred over the years, and still have $172,510 in their HSA.
* Investing in mutual funds involves risk, including possible loss of capital.
Rate of return is shown for illustration only and does not represent the return of any specific investment. Your returns will vary.
