Your HSA and Retirement

Health Savings Accounts (HSAs) are rapidly growing in both size and numbers.  These accounts offer deductible contributions and tax-free distributions for qualified medical expenses.  An HSA can be a valuable tool for paying for medical expenses today and also for planning for the future.  

Here are 5 HSA rules you need to know.


1. Contributions are ALWAYS deductible. 

High income individuals are often restricted from accessing tax reducing programs.  For example, if you earn too much you can’t contribute to a Roth IRA.

If you are contributing to an employer sponsored HSA, your contributions are income tax deductible and you avoid FICA taxes too.   Your contributions to an HSA you maintain are still tax deductible.

2. A High Deductible Health Plan (HDHP) is required to have an HSA. 

To qualify as an HDHP plan, the plan must have a minimum deductible and a maximum out-of-pocket expense.  These amounts are indexed for inflation.  Except for preventative care, an HDHP may not provide benefits until the deductible for the year is met.

3. Contribution Limits. 

How much you can contribute to an HSA depends on your age and type of health insurance.  For 2023 Family contributions are capped at $7,750; Individual at $3,850.   If you are 55+, you are eligible for an additional $1,000.  If both spouses are eligible for the extra $1,000, a separate account will need to be opened for the non-employee spouse.  Otherwise, contributions will exceed the Family limits.

If you have limited cash to contribute, where do you apply your payroll deductions?  

  • Contribute to your 401(k) to receive the company match.
  • Maximize your contributions to the HSA.
  • Contribute any remaining available money to the 401(k).

4. Distributions are tax-free from your HSA if they are for qualified medical expenses.  

If payments are made for non-qualified expenses, the distribution is taxable income to you.  If you are under 65, non-qualified distributions are also subject to a 20% penalty.  

You can choose to pay out-of-pocket for your medical expenses.  At a later date, you can reimburse yourself for those expenses; just keep the receipts.    

5. Saving for medical expenses in retirement. 

Medical expenses are a big part of costs for retirees.  Studies have shown that a 65 year old couple may need as much as $225,000 for medical expenses during retirement – that includes insurance premiums.

Maximizing HSA contributions and limiting distributions can create another nest egg for retirement.

Once you have enrolled in Medicare, you can no longer contribute to your HSA.  You can make tax free distributions for current qualified medical expenses.


More Posts

What I Learned From My Mom About Money

Our childhood memories around money form many of our attitudes about money today.  Some may be positive experiences like vacations.   Or “staycations” when money

More To Explore