How To Use HSA In Retirement To Make The Most Of It

By Aman Jain | Originally Posted on ValueWalk

Health savings accounts (HSAs), as you are aware, help you to meet qualified medical expenses. However, not many will know that it could prove a powerful tool in retirement if used correctly. In this article, I will discuss how to use an HSA in retirement to maximize its potential.

Pay Healthcare Bills

This is the most common use of your HSA, as it is primarily meant for that purpose only. Medical expenses usually form a significant part of overall retirement costs. So, if you have an HSA, it could help you to pay all your health-related bills, including Medicare Part A and B premiums, prescriptions and out-of-pocket costs, like deductibles.

Make It Work As Medicare

You are not eligible for Medicare unless you are 65. So, if you retire before that age, you can use your HSA to cover your healthcare bills, including paying insurance premiums. We generally can’t use an HSA to pay for private health insurance premiums. There are, however, two exceptions to that – paying for health care coverage if it is through an employer-sponsored plan under COBRA and paying premiums while receiving unemployment compensation.

Pay Medicare Premiums

You can use your HSA to pay premiums for Part B and Part D prescription-drug coverage. So, if you are over 65 and have employer-sponsored health coverage, then you can use the HSA to pay for such costs as well.

Pay For Non-Medical Expenses

Once you reach 65, you can use the HSA funds for non-healthcare expenses without having the 20% early withdrawal penalty. This means you can use the HSA funds to meet your day-to-day expenses, including paying for home renovations, buying a boat and more. You will, however, have to pay income taxes (state and federal) on whatever you withdraw.