Can I Contribute to an HSA After I Retire?

by James Lionel | Originally posted on XDigitalNews

A health savings account (an HSA) is a form of tax-advantaged retirement account designed for healthcare spending. You can make contributions to your account at any time so long as you aren’t enrolled in Medicare. During any period when you are enrolled in Medicare, you cannot make contributions to a qualified HSA. If you have other questions about retirement savings and healthcare, it may be a good idea to talk to a financial professional who can help you plan. A financial advisor can play such a role, and SmartAsset’s free advisor matching tool can match you with advisors that serve your area.

What Is an HSA?

A health savings account (HSA) is a tax-advantaged retirement account that shares features of both a 401(k), an IRA and a Roth IRA. Like a 401(k) and IRA, the money that you contribute to a HSA is fully tax deductible. You don’t pay federal or state income taxes on this money, and can even deduct it from your payroll (FICA) taxes.

You can build an HSA either individually or through your employer. With an individual plan you would make contributions yourself, then make the relevant deductions on your end-of-year taxes. With an employer plan, your payroll department could make HSA contributions and tax adjustments in the same way that they do with a 401(k). Employers who run an HSA program can also make contributions for their employees.

In addition, like a Roth IRA, withdrawals from an HSA are tax-free so long as you use the money to pay for a qualified medical expense. This includes all of the account’s gains over time, meaning that you have a pool of completely untaxed money available for medical spending.

HSA Withdrawals

After age 65 you can withdraw money from an HSA for any reason without incurring a penalty. However, if you spend the money on non-medical expenses you will have to pay taxes on your withdrawals in the same manner that you would with an IRA or a 401(k) plan. This structure has made health savings accounts potentially popular as a retirement vehicle for qualifying individuals. (That said, both health and financial experts generally do not recommend this program overall, for reasons explained below.)