HSAs, Medicare, and retirement savings

Getting older doesn’t just mean more experience and wisdom. It also means more opportunity to grow your money—and save for retirement.

That’s where a Health Savings Account (HSA) can make a huge difference. With an HSA you can save for retirement and spend your money in retirement too. All totally tax free¹ (when used appropriately for HSA-qualified expenses).

Below we share the three main tax advantages of an HSA. Then we discuss specific account options for members ages 55+ and 65+. You’ll see why HSAs are such a valuable tool for retirement savings. And what it all means for Medicare.

Let’s go.

Retirement savings: HSA triple-tax advantage

Health Savings Accounts (HSAs) are the only savings accounts with a triple-tax advantage. That means:

1. Tax-free contributions.¹ You don’t pay taxes on the money you put into an HSA.

2. Tax-free account growth. You can invest² your HSA in bonds or mutual funds, and any account growth is tax free. Just like a 401(k).

3. Tax-free spending on qualified medical expenses. You can spend the money in your HSA tax free if you pay for qualified medical expenses. By contrast, the money in your 401k will be taxed, even when you pay for medical expenses.

The best part? Funds in your HSA never expire. They stay with you forever.

That’s why so many members use their HSA to save for the long-term. And why we encourage members to consider investing the money in their HSA.

HSAs can be a powerful piece of your overall retirement savings strategy.

Members 55+: $1,000 HSA catch-up contributions

For 2024, HSA contribution limits exceed $4,000 for individual health plans and exceed $8,000 for family health plans. If you max your HSA contributions, you can sock away a lot of money for the future.

And it gets even better for members 55+, who can contribute an extra $1,000 to their Health Savings Account.

Note the $1,000 catch-up contribution is the same for both individual and family HSA-qualified plan coverage.

That means partners can each contribute $1,000 if they have separate individual health plan coverage. But if they share a family plan, only one $1,000 contribution is allowed.

If you add it up, those with family coverage can contribute more than $9,000 each year into their HSA. In the ten years from ages 55 to 65, your family could potentially put away an extra $90,000+ in your HSA for retirement.

So, if you’re a little behind on retirement savings, this is your sign to stomp that gas pedal!

Members 65+: Rules for HSAs and Medicare

In order to make HSA contributions, you must be enrolled in a high-deductible health plan (HDHP). Under IRS rules, neither Medicare Part A nor Medicare Part B count as a high-deductible health plan.

Joining Medicare means you lose HSA eligibility—and can no longer make HSA contributions. So, if you plan to join Medicare, remember to stop HSA payroll contributions.

Keep in mind also that Medicare coverage can be backdated up to six months (but no earlier than your 65th birthday). So, always consider this six-month backdating to avoid any penalties.

You can still make pro-rated HSA contributions for the months you had HDHP coverage before enrolling in Medicare. And catch-up contributions still apply to your pro-rated contributions. So, whatever number you arrive at, you can add an extra $1,000.

Members 65+: Rules for HSA spending

Just because you can’t add money to your HSA, doesn’t mean you can’t use the money in your HSA to offset Medicare costs.

Medicare has premiums just like other health plans. Medicare has deductibles too.

The good news—you can use the money in your HSA to pay for both. Totally tax free.

That’s because premiums and deductibles count as qualified medical expenses. Just like thousands of other products and services: including doctor visits, dental health, vision health, prescriptions, over-the-counter medications, and more.

But let’s say you need money to pay for something that isn’t a qualified medical expense. No problem!

After age 65, you can use the money in your HSA to pay for any expense, you’ll simply need to pay ordinary income taxes on the distribution.³

In this respect, your HSA can work a lot like a traditional 401(k).

Of course, HSAs are always tax free when used appropriately for qualified medical expenses. By contrast, your 401(k) distributions are always taxed no matter what you use the money for.

Also, 401(k) accounts have required minimum distributions (RMDs). HSAs, however, do not have required minimum distributions. You can keep the money in your account and grow it as long as you need it.

With so many benefits and tax advantages, HSAs can make a great complement to your overall retirement savings strategy.