How to Max-Out a HSA for Retirement

Most of us are aware of 401k and Roth IRA plans that are investment tools for retirement. It is ingrained in us to max out our 401(k) or similar workplace defined contribution plan as the best way to save for retirement. This is certainly good advice. However, in recent years, another retirement savings vehicle has come about that might be superior to the 401(k): a health savings account (HSA). However, many do not realize the benefits of maximizing a HSA to the fullest advantage into retirement and beyond. In fact in a study done as recent as 2018 by the Employee Benefit Research Institute, a vast majority of employees are unaware of the full potential of their own HSA. A HSA is a medical savings plan set up to save for medical expenses and reduce your taxable income. All HSA’s have a triple tax advantage making it the most tax-preferred account available.

  1. All contributions are pre-tax.

  2. The balance of the HSA has tax-free growth; essentially meaning all interest income earned is tax-free.

  3. All medical related withdrawals made from the HSA are tax-free.

The major retirement advantage of the HSA relates to how it affects you once you turn age 65. An HSA behaves similarly to a traditional IRA after age 65. You are able to withdraw funds from the HSA for non-medical expenses completely penalty free, where-as prior to age 65, only medical related withdrawals can be made. Distribution after 65, if not used for qualified medical expenses, is taxable income.


Before establishing and contributing to a HSA you should first check to see if your employer contributes to the fund in any way. Some employers will cover all (or a portion) of your fees in addition to making a certain percent of your contributions for you. Then, you need to know what your investment options are, and if there are any minimum amounts in those investments. You also need to know that enrolling in a HSA usually requires a high-deductible health plan. So be sure that fits with you and your family needs. If it does fit, it could very well be another good way to further supplement your retirement savings.


The bottom line is this: If you have money to invest in your retirement you should first start with the IRA’s and 401k’s as they are designed specifically for that purpose and do have some advantages that the HSA does not have. But, if you find that you still have additional funds that you would like to invest in your retirement (since retirement funds have maximum contribution amounts) you will want to seriously consider the benefits of having a HSA as a further retirement tool that is a top-notch way to save for retirement.


Contact us at OFWF to see if we can help determining if HSAs are a smart way to supplement your retirement and how to make your HAS reach its full potential.

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