7 Ways You Can Use Your HSA During Retirement
Key takeaways:
If you don’t use all the money in your health savings account (HSA) to pay for qualified medical expenses before, you can use the funds during retirement.
You are not allowed to contribute to an HSA after you enroll in Medicare. However, you can still use the funds in your account to pay for Medicare premiums, qualified long-term care premiums, hearing aids, and other eligible expenses.
After you turn 65, you can use the funds for any purpose without incurring a penalty.
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One survey found that more than half of Americans believe they are not on track with retirement planning. Taking advantage of employer-sponsored retirement plans like 401(k)s can make a big difference in how prepared you are for your golden years. But there are other options, such as a health savings account (HSA), that people often overlook.
You can use tax-free funds from your HSA to pay for qualified medical expenses, such as hearing aids and prescription eyeglasses. But you can also use an HSA to grow your money and use it for expenses you may face during retirement.
What is an HSA?
An HSA is a tax-advantaged account that can be paired with a qualified high-deductible health plan (HDHP) to help you lower your healthcare costs now and during retirement.
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The main benefits of an HSA include:
Triple tax advantage: With an HSA, you can take advantage of tax-free contributions, growth, and withdrawals as long as the money is used to pay for qualified medical expenses. If you set up your own account, you can deduct your HSA contributions on your tax return
Ownership: Unlike the money in a flexible spending account (FSA), you own the funds in your HSA. Since the account is not tied to your employer, you can continue to use the account if you switch jobs and when you retire.
Investment options: Many HSA providers allow you to grow your savings through investments in stocks, mutual funds, bonds, and other assets.
How does an HSA work after age 65?
Once you hit 65, you can use your funds to pay for whatever you want without penalties. This includes:
But keep these factors in mind:
There is no penalty when you spend your HSA dollars on nonqualified expenses. But you are subject to taxes on the amount you withdraw to pay for those expenses.
Money you spend on qualified healthcare expenses remains tax-free.
You will have to report HSA distributions on your tax return.
Before age 65, you can contribute to your HSA and get all the tax advantages. But if you use your HSA funds to pay for nonqualified healthcare expenses, you will be subject to a 20% penalty. You will also need to pay taxes on the money you withdraw. Though, there are exceptions to the rules in cases of death and disability.
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Ways to spend your HSA funds during retirement
As long as you use your HSA to pay for qualified healthcare expenses, you will not pay any taxes on the funds. You can find a list of eligible expenses on the IRS’s website, or you can seek the help of a tax professional.
Here are 7 ways you can use your HSA funds tax-free during retirement.
1. Qualified premiums
Generally, you can’t use your HSA to pay for insurance premiums. However, there are a few exceptions, including Medicare premiums and long-term care premiums.
If you are age 65 or older and enrolled in Medicare, you can use your HSA to pay for eligible Medicare premiums, such as:
Medicare Part A (hospital insurance) premiums
Medicare Part B (medical insurance) premiums
Medicare Advantage premiums
Medicare Part D (prescription medication coverage) premiums
You can also use your HSA to pay for premiums if you have a tax-qualified long-term care insurance policy. The amount you can use tax-free from your HSA to pay these premiums depends on your age and specific limits set by the IRS. Below are the limits for 2024.
Age at the end of 2023 | Maximum HSA funds you can spend on long-term care insurance premiums |
|---|---|
40 or under | $480 |
41-50 | $890 |
51-60 | $1,790 |
61-70 | $4,770 |
71 or older | $5,960 |
2. Hearing aids
Studies show that 30% to 35% of adults ages 65 to 75 experience some level of hearing loss. You can use your HSA to pay for hearing aid expenses that are not covered by your insurance or any other sources. Hearing aids typically range from $1,000 to $4,000, but you may pay more depending on your situation.
3. Capital improvements to your home
Capital expenses, such as exit ramps for a home, can be paid for with tax-free HSA funds as long as they are for a qualified medical purpose. You may need to get a letter of medical necessity from a qualified healthcare professional to confirm that the home improvements are needed for medical reasons.
Below are other common examples of capital improvements to your home that may be HSA eligible:
Adding handrails or grab bars in bathrooms
Lowering cabinets and sinks
Modifying or adding filtration or purification systems for respiratory conditions
Modifying or adding heating or air condition systems
Modifying stairways
Widening doorways or hallways
4. Health screenings and diagnostic services
Your medical team may perform regular health screenings and diagnostic tests to help monitor your health as you age. The following tests and services may be HSA eligible:
5. Vision expenses
As you get older, you may notice changes in your eyesight. If you have trouble reading fine print, experience dry eyes, or have any other vision-related changes, you may be able to use your HSA for the following expenses:
6. Prescription medications
As you get older, you may need certain medications to address health concerns or improve your longevity. Since prescription medications are considered a qualified medical expense, you can use your HSA to pay for them. A few common medications that you may be able to purchase with your HSA funds are summarized in the chart below.
Condition | Medications |
|---|---|
Chronic weight management | Saxenda (liraglutide) Wegovy (semaglutide) Zepbound (tirzepatide) |
Type 2 diabetes | Mounjaro (tirzepatide) Ozempic (semaglutide) |
Erectile dysfunction | Sildenafil (Viagra) Tadalafil (Cialis) Stendra (avanafil) |
7. Dental care
Original Medicare doesn’t cover routine dental care. But you can use your HSA to pay for medically necessary dental expenses, such as:
What happens to your HSA account when you retire?
You are not allowed to contribute money to an HSA after you have enrolled in Medicare. But you can continue to use the funds in your account to pay for qualified medical expenses. Most people start enrolling in Medicare around age 65, but there is no mandate to enroll.
Are HSA withdrawals in retirement tax-free after age 65?
HSA distributions are tax-free during retirement if you use the money to pay for qualified healthcare expenses. You can withdraw funds from your HSA at any time. There is no age requirement to make tax-free withdrawals from an HSA.
The bottom line
Although you are not allowed to contribute money to a health savings account (HSA) after you enroll in Medicare, you can still use your HSA funds during retirement. Your HSA can be used to pay for many qualified medical expenses, including hearing aids and dental and vision care. After you turn 65, you can use your account to pay for nonqualified expenses without being charged a penalty.
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References
American Academy of Audiology. (n.d.). Seniors and hearing loss.
Bloomberg Tax. (n.d.). Sec. 7702B. Treatment of qualified long-term care insurance.
Brenan, M. (2023). Americans’ outlook for their retirement has worsened. Gallup.
Hazanchuk, V. (2022). 21 ways aging changes your eyes. EyeSmart.
Internal Revenue Service. (2024). 401(k) plans.
Internal Revenue Service. (2024). Instructions for Form 8889 (2023).
Internal Revenue Service. (2024). IRS announces 401(k) limit increases to $20,500.
Internal Revenue Service. (2024). Publication 502 (2023), medical and dental expenses.
Medicare.gov. (n.d.). Get started with Medicare.
Medicare.gov. (n.d.). What's Medicare?
This article is solely for informational purposes. This article is not professional advice concerning insurance, financial, accounting, tax, or legal matters. All content herein is provided “as is” without any representations or warranties, express or implied. Always consult an appropriate professional when you have specific questions about any insurance, financial, or legal matter.
