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Is HSA a Retirement Plan?

An HSA, or health savings account, is not a retirement plan, but it can be used to accumulate money for the long-term. You can deduct the money you put into an HSA from your taxes, allowing you to pay for health care expenses with pre-tax dollars. A health savings account is not a retirement fund. It is intended to cover out-of-pocket medical expenses, but can give you more money to put toward your retirement savings.

  1. Health Savings Account

    • The money accumulated in a health savings account is intended for out-of-pocket health care expenses. To open an HSA, you must have high-deductible health insurance. You can then put money into your HSA and use to it offset the higher deductible and pay your health care costs. You can use the money in your HSA to pay for things like co-payments, dental care, braces and contact lenses, thereby freeing up the money in your checking account for other investments.

    Money Rolls Over

    • Money can grow and accumulate over time. If you do not use the entire balance in your HSA for health care expenses during the year, the money stays in the account, where it can grow and accumulate. You can accumulate a significant balance in your HSA if you remain healthy and incur only routine medical expenses. HSA owners can keep part of their money in a savings account, and put the rest in mutual funds for long-term growth.

      A health savings account is different from a flexible spending account, in that the money does not have to be spent by the end of the year. If you have money left in your HSA at the end of the year, that money rolls over to the following year, and you can use it whenever you want.

    Contribution Limits

    • As of January 2011, the IRS allows individuals to contribute up to $3,050 to their health savings accounts and take a tax deduction for the full amount of the contribution. Those who have family coverage can contribute up to $6,150 to their plans. Anyone who is 55 or older and not enrolled in Medicare can contribute an extra $1,000 to the plan. Always check with the IRS, or your CPA, before making your annual HSA contribution.

    After Age 65

    • If you spend the money in your health savings account for non-medical expenses, you face a 10 percent penalty from the IRS on the money you used for non-medical expenses. However, that penalty is waived for those 65 years of age and older. Those who are eligible for Medicare can also use the money in their health savings accounts to pay the cost of a Medicare supplement plan.

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