When you think about saving for retirement, your mind probably jumps to your 401(k) or IRA. But there’s another tool that doesn’t always get the attention it deserves – your Health Savings Account (HSA). Yes, that account you might have set up for doctor visits and prescriptions could actually be a retirement powerhouse.
Why an HSA is More Than Just a Medical Fund
HSAs are often compared to Flexible Spending Accounts (FSAs), but they’re completely different in some very important ways. One of those differences is, unlike an FSA, where you have to use the money within the year or lose it, an HSA lets you save, invest, and roll over funds indefinitely.
Here’s why it’s such a big deal:
- Pretax money goes in. Just like your 401(k) or traditional IRA, contributions to an HSA are tax-deductible. If you contribute through payroll deductions, you also avoid Social Security and Medicare taxes.
- Tax-free growth. When you invest your HSA funds, any gains, dividends, or interest grow tax-free—just like a Roth IRA.
- Tax-free withdrawals (when used for health expenses). If you use HSA funds for qualified medical expenses, you never pay taxes on that money. That’s a triple tax advantage – something no other retirement account offers.
A Retirement Loophole for High Earners
If you make too much money to contribute to a Roth IRA, or your income limits your ability to deduct a traditional IRA contribution, an HSA is still available to you. Here are some 2025 numbers you should know:
Health Savings Account (HSA):
- Contribution Limits:
- Self-only coverage: Up to $4,300.
- Family coverage: Up to $8,550.
- Catch-up contribution: Individuals aged 55 and older can contribute an additional $1,000.
- Eligibility: To contribute to an HSA, you must be enrolled in a High-Deductible Health Plan (HDHP). For 2025, an HDHP is defined as a plan with:
- Minimum deductible: $1,650 for self-only coverage; $3,300 for family coverage.
- Maximum out-of-pocket expenses: $8,300 for self-only coverage; $16,600 for family coverage.
Roth IRA:
- Contribution Limits:
- Under age 50: Up to $7,000.
- Age 50 and older: Up to $8,000.
- Income Limits for Full Contribution:
- Single filers: Modified Adjusted Gross Income (MAGI) less than $150,000.
- Married filing jointly: MAGI less than $236,000.
If your income exceeds these thresholds, the contribution limit phases out and is eliminated at higher income levels.
Traditional IRA:
- Contribution Limits: Same as Roth IRA.
- Deduction Phase-Out Ranges:
- Single taxpayers covered by a workplace retirement plan: MAGI between $79,000 and $89,000.
- Married couples filing jointly:
- Spouse making the IRA contribution is covered by a workplace retirement plan: MAGI between $126,000 and $146,000.
- IRA contributor not covered by a workplace retirement plan, married to someone who is covered: MAGI between $236,000 and $246,000.
Beyond these ranges, the ability to deduct contributions phases out.
NOTE: There are no income limits for contributing to an HSA, as long as you have a high-deductible health plan (HDHP). That makes an HSA a sneaky way to stow away extra tax-free money for later!
Using Your HSA in Retirement
While you can use your HSA for medical expenses at any time, it really shines in retirement. Here’s why:
- You can use it for Medicare premiums. Once you’re on Medicare, you can use HSA funds to pay for Part B, Part D, and even Medicare Advantage plan premiums.
- It helps cover long-term care. You can use it for long-term care insurance premiums or nursing home expenses.
- No required minimum distributions (RMDs). Unlike a 401(k) or traditional IRA, you’re not forced to start withdrawing at age 73. You can let your HSA grow tax-free as long as you want.
Maximize Your HSA With Employer Contributions
If your employer contributes to your HSA, that’s free money, just like a 401(k) match. Some companies contribute a lump sum, while others match what you put in. If your employer offers this perk, don’t leave money on the table – maxing out your HSA could be one of the best financial moves you make.
Knowing where to put what money can be confusing. The good news is that there are resources (I’m raising my hand over here!) that can help you make educated decisions about your savings options.
Let’s talk about where you are and where you’re going. CLICK HERE to make an appointment.
