Think You Maxed Out All of Your Retirement Accounts? Think Again.


Many people know that they can shelter their income from taxes by maxing out their contributions to their 401k and Roth IRA each.

But what if I told you that there was another way that you could find even more tax savings for your income? If you have a Health Savings Account (HSA), you can contribute as much as $3,250 per year ($6,450 per family) tax free.

What is a HSA?

HSAs were created in 2003 so that people covered by health insurance plans with high-deductibles could receive tax-preferred treatment for money spent on medical expenses. Although HSAs aren’t technically retirement accounts, they can be used to not only pay for health care expenses today, but can be used to save for health care expenses during retirement. Why is that so important? Because, according to the Centers for Medicare and Medicaid Services, healthcare is the number one expense for retirees, and healthcare expenses are expected to grow at an average annual rate of 5.8 % over the next decade. That’s almost twice the rate of inflation!

Because these accounts are strictly for healthcare expenses, one of the biggest advantages of HSAs is that they are triple-tax free savings accounts. You can make contributions with pre-tax money, the money can be invested, grow tax free and the best part of all, the money comes out tax free. In fact, similar to IRAs, there’s even an extra $1000 per year “catch-up provision” if you’re 55 or older. Can you name any other retirement account that offers that kind of tax benefit? The other key feature to HSAs is that their balances roll over every year, unlike Flex Savings Account’s (FSAs), which have a “use-it-or-lose-it” policy. This is why HSAs can be such a vital tool for building a retirement nest egg.

Can I use a HSA to Pay for Insurance Premiums?

Typically you can’t use your HSA to pay for your insurance premiums, unless you’re using it for healthcare continuation coverage (e.g. COBRA) or while receiving unemployment compensation. If you are over the age of 65, you can use your HSA for Medicare and other healthcare coverage other than for premiums for a Medicare supplemental policy (e.g. Medigap). Premiums for Medicare Part D for you, your spouse and dependents are considered a qualified medical expense as long as you are at least 65 years old.

Another reason a HSA is a crucial retirement tool is because it can be used to pay for Long Term Care Insurance premiums. The amount, however, is limited and is based on age and adjusted for inflation each year. This is vital because just like healthcare, long term care costs have increased (8.6% compared to a year ago), according to the 2015 Long Term Care Insurance Price Index.

How Do I Open a HSA?

HSAs can be established for any individual that is:

  • Insured by a high deductible health plan
  • Not insured by another health plan
  • Not eligible to be claimed as a dependent on another person’s tax return
  • Not entitled to Medicare benefits

You can either check with your insurance company to see if they offer HSAs along with your high deductible plan or you can open a HSA directly with a HSA provider. If you have high deductible insurance through your job and are eligible for a HSA, talk to your employer about it. Employers are able to make pre-tax contributions to employee HSAs as well. The critical thing to remember is that your HSA belongs to you, regardless of your employment status. If you lose or changes jobs, you’ll never lose your HSA.

If you currently have a HSA and have not considered how you can invest the money to save for retirement, give us a call.