HSAs and Retirement

[amaguri]

Well retirement is still a ways away but I daydream about it a lot and try to figure out when I’ll be (at least financially) ready to call it. I read the other day that you’re still able to use an HSA for medical expenses even after you’re retired and no longer contributing to it…

so let’s say you max out your 401k for the year, wouldn’t it also make sense to max out your HSA in the years preceding retirement so you’ll have a nice little nugget of cash to use for those inevitable expenses?

[elbows]

What’s an HSA? I’ve never heard that.

[amaguri]

Health Savings Account… for the current plan I’m on, it’s $3500 per individual or $7000 per family maximum contribution, pre-tax. But of course you can only use it for medical expenses.

[LSLGuy]

Here are three threads on exactly that.
Nov 2015:

ACA Marketplace : HSA, what's the dope? Also, what's with coinsurance?

I’m self employed. That means the first taxable dollar I make, I have to pay 15% tax on it, and it goes up from there. Right now I just have short term medical insurance because I missed the ACA signup deadline last year. So as I understand it, the money I pay towards ACA premiums is tax deductible (err, apparently it counts as an “income adjustment” instead). However, for covering deductible and out of pocket expenses, apparently, certain insurance plans are “HSA eligible”. As near as I ca…

Oct 2020:

Should I get an HSA (Health Savings Account)

Open Enrollment time is upon us again at my workplace, and once again I am mulling over whether I should sign up for the HSA Qualified high deductible health plan. I know that some people (Dave Ramsey is one prominent example) love HSAs, but I would appreciate some advice from those who have one, or at least who know something about them. I work at a large public university. My health insurance covers both me and my wife. The interesting thing is, my current plan also has a fairly high deduc…

Jan 2021:

Should I let my HSA grow indefinitely?

I’ve had a HDHP for a couple or so years and have an HSA that I contribute to. I contribute basically $100/week to the HSA, and my employer contributes $1700 annually. At the moment I have about $19.5k in the account. My max OOP for a year is $11k if everything were out of network (I cover my college age son, so my maxes are family size), which would never happen, and my max health OOP in network is $6900. I’ve never even come close to half that. So: how large should I let my HSA grow before I …

In general, assuming you can afford it, and your HSA provider has decent investment options beyond just passbook savings, you should consider it simply an extra 401K or IRA and max it out every year, never touching the money until retirement.

See also this Investopedia advice.

@elbows: HSA’s are only available to people who have a certain type of medical plan, a so-called “high deductible health plan” or HDHP. Although they’ve been around for 20-ish years now fairly few employers offer them.

[amaguri]

Thank you! To be clear I currently contribute to an HSA but primarily to cover expenses in the same year.
So based on some of the responses in the other thread I think there’s a lot to think about. Interesting stuff that no one really teaches you…

[MrAtoz]

As the OP of the second of those threads that LSLGuy just linked, I will agree with the suggestion that you can, and if your finances allow it, should treat your HSA as an additional retirement account. I might disagree with LSLGuy’s advice never to touch the money until retirement, just to the extent that if you end up with a whopping big medical bill that you can’t cover in any other way, I don’t think it’s a horrible idea to pay for it with HSA funds. I suppose that’s a matter of opinion.

Also note that after you reach age 65, you can withdraw funds from your HSA for any purpose, not just medical expenses. You will pay taxes on the withdrawals if they are for non-medical reasons, just as you would for a (traditional, non-Roth) IRA, but there is no penalty.

I had an FSA for years before changing to the HSA, and the very fact that HSA funds roll over from year to year is one of the biggest advantages. I would say that if you can afford it, definitely max out the HSA. I know of people who will keep $1,000 of their HSA money earmarked for everyday medical expenses, and invest the rest of the balance in higher-yield investment options for the purpose of long-term growth. Effectively using it both to pay medical expenses, and to save for retirement.

[squeegee]

@MrAtoz

I know of people who will keep $1,000 of their HSA money earmarked for everyday medical expenses

That’s what I do: leave $2800 (my deductible size) spendable in the HSA and the rest ($20k at the moment) in investments. I don’t touch the ‘cash’ portion unless I have a whopper bill, but it’s there if I (likely unexpectedly) need it.

[digs]

My work (school teacher) gave me my accrued sick days as an HSA when I retired. A nice chunk of change. My first thought was “Woo-hoo! I can start paying for prescriptions and glasses and…” Nope, we haven’t touched ours yet. We realized that as we get older, we’ll have more serious medical bills, so it’s a Gettin’ Sick Nest Egg.

[JohnGalt]

Exactly my position at the end of the current semester when I retire. I’ll have 110 accrued sick days that will go into an HSA. It’s nice knowing it’s there to get me through the next few years until I’m Medicare eligible.

[Carlarm]

You can definitely use HSA funds to pay medical and dental expenses after you’ve retired and signed up for Medicare. Furthermore, you can use HSA funds to pay the Medicare premiums without having to pay income tax on the distributions. Medicare premiums are usually deducted from Social Security benefits, but that doesn’t prevent reimbursing yourself from your HSA account. Depending upon where your HSA account is, you may be able to invest in stocks or mutual funds and make a decent return on your money.