3 Reasons an HSA Should be Part of Your Retirement Plan

April 8, 2020

Non-Deposit Investment Products are: not insured by the FDIC; not a deposit or other obligation of, or guaranteed by, the bank; subject to investment risks, including possible loss of the principal amount invested. 

If you’re preparing for retirement and typically max out contributions to your IRA and 401(k), an HSA can offer an additional way to put aside money for later. Once you reach the age of 65, you can take withdrawals on any remaining HSA balance for non-medical expenses without penalty fees. Taxes still apply to your withdrawal amounts, similar to the rules that would apply for Traditional IRAs*.

Here are three important ways that an HSA can help you get ready for retirement:

1. Save Specifically for Health Care

People earmark savings for all sorts of specific goals. You may have a 529 savings account for your child’s college expenses, or you might have specific savings accounts for a new car, a special family vacation, or a new home. So why not put money away for your health care? If you retire before age 65, you might still need health care coverage, and an HSA can help bridge the gap in payments until your Medicare eligibility. An HSA can also be a way to pay certain Medicare expenses, including premiums for Part B and Part D prescription-drug coverage after you retire.

2. HSA Dollars Work for You by Investing Them

Establishing a cash cushion within your HSA may give you the power to invest in mutual funds, stocks, or bonds for even more tax-free growth of your retirement nest egg. One significant benefit of making an HSA part of your retirement plan is that there is no required minimum distribution mandated. Once you turn 72 (effective 01-01-20, age 70 1/2 increased to age 72 under the SECURE Act), you are required to take minimum distributions from traditional IRAs or 401(k)s and pay taxes on those distributions. (Note: Those individuals between the ages of 70 1/2 and 72 who are already receiving mandatory distributions from traditional IRAs or 401(k)s under the pre-01-01-20 rule must continue to receive mandatory distributions and pay taxes on those distributions.)

Consider taking advantage of the triple-tax benefits offered by an HSA to strengthen your retirement for years to come.

Your top priority should be to have enough cash to pay for unanticipated qualified medical expenses and out-of-pocket deductibles throughout the year, but then we suggest working with a Wealth Management officer to see what you can do with the rest.

Pro Tip!  An HSA is one of the most tax-efficient savings options, so consider contributing the maximum and paying for current health care expenses from your personal savings whenever possible.

3. HSAs Can Play a Role in Your Estate Planning**

You may have money in your HSA that can pass along to loved ones after you’re gone, if your medical expenses are much lower than planned.  However, note that HSA rules and tax implications differ greatly depending on whether the account has a spousal beneficiary or a non-spousal beneficiary. The rules can be complicated, so it’s best to consult your estate planning attorney and tax professional for guidance.

Ready to Make a Retirement Plan?
Contact our Wealth Management Department at 713-595-7432
or email us to schedule an appointment.

*Consult your tax advisor for how an HSA or FSA might benefit you, depending on your particular tax situation. 

**Notice:
Wealth Management Department Investments include non-deposit investment products which are:

 – Not bank deposits
– Not FDIC insured
– Not insured by any federal government agency
– Not guaranteed by the bank
– May decrease in value