HSAs in Your Retirement Plan?


With the cost of retirement continually rising, it’s important to start planning as soon as possible. You may have an IRA and/or a 401(k). But have you included a Health Savings Account (HSA) in your planning? Each offers important benefits. You may already know how an IRA and a 401K help, but you may not realize how HSAs fit.

Individual Retirement Arrangements (IRAs)

The Internal Revenue Service (IRS) defines six different types of Individual Retirement Arrangements (IRAs). The bottom line is they are all tax-advantaged savings plans, intended to help Americans with retirement planning. Fidelity shares some of the account benefits:

  • They can supplement your employer-sponsored savings
  • You have investment choices
  • You are in control of your tax status by choosing tax-deferred or tax-free growth.

Basically, any adult can open an IRA, but you’ll generally need to navigate it as an individual (outside of work) and there are a plethora of contribution limits and rules to follow. You’ll need to learn more to ensure they are appropriate for your anticipated needs. Since IRAs must be established at vendors such as banks and brokerage firms, you may want to speak with a financial professional before opening one.


The IRS defines a 401(k) as “…a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts. The great thing about these accounts is employers sponsor them, and some employers even offer matching programs on a portion of the employees contribution.

Depending on exact plan setup, these 401(k) benefits offer a lot:

  • Contributions are pre-tax; that is, deducted before payroll taxes are calculated
  • Contributions can change as often as your circumstances change
  • Employers can contribute to your account

However, not all employers offer a 401(k) program, so this option may not be available for you. If your employer does not sponsor a plan, consult a financial advisor and/or your HR benefits administrator about the retirement options that are available.

401(k) distributions are considered taxable income in retirement (unless they are qualified distributions of designated Roth accounts; see the IRS here for more information).

Health Savings Accounts (HSAs)

HSAs are medical savings accounts that provide tax advantages. HSA funds can pay for a wide variety of eligible medical and healthcare expenses.

Ways to Use HSAs for Retirement

  • Triple tax advantages: Account owners make pre-tax contributions and earn tax-free interest and investment returns. Money spent is tax-free as well if used for qualified medical expenses.
  • Rollover: Unlike some other benefit accounts, there is no ‘use it or lose it’ feature. Unused HSA funds stay put in your account and roll over each year.
  • No penalties once 65: If you use your HSA funds for non-medical purchases or non-qualified medical expenses before the age of 65, there’s a 20 percent tax penalty. However once you turn 65 that penalty goes away. Anything you spend on qualified medical expenses remains tax-free. Other expenditures are taxed at your current rate, like an IRA.
  • Catchup: Once you reach the age of 55, you can contribute an additional $1,000 a year to the account, tax-free, above the normal limit.
  • Additional contributions: If you haven’t contributed the maximum annual limit by 12/31, you can continue making contributions against that year’s limit until the tax filing deadline for that year (usually, the following April 15).
  • Inheritance: Surviving spouses of a deceased HSA account holder can use any remaining balance in the account and enjoy all the benefits of the original account owner. Once the account holder and spouse have both passed, the next set of beneficiaries will be taxed on the leftover amount after medical bills of the deceased have been settled.

There are some important considerations with HSAs. You are eligible to open or contribute to an HSA if enrolled in a qualified high deductible health plan (HDHP), and you are subject to IRS rules each year on the minimum insurance deductible and how much you can contribute tax-free. Despite these limitations, there are significant advantages that can help you to cover medical and other expenses in retirement.

So which accounts should I use in my retirement plan?

Each one of these tools (IRA, 401(k), and HSA) offers a variety of benefits, but not everyone has access to all of them. To ensure that you are saving enough to ensure a comfortable retirement, do your research, consult with a financial adviser, and ask your benefits administrator about how an HSA account can help grow your retirement nest-egg.

Summit HSA is a cloud-based, full-service HSA management platform that provides HSA administration, HSA cards, investments, and deposits in-house 

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