How to Use an HSA for Healthcare in Retirement

When you’re retired, the money you’ve contributed to a health savings account can help you cover medical expenses and, after age 65, other expenses. Plus, these accounts offer tax advantages. Here’s what to know, and how you can use them in retirement.

At Farm Bureau, we know that figuring out how to cover your expenses during retirement can be complicated. Find an agent who can help you plan for the cost of healthcare. 

What Is an HSA?

A health savings account (HSA) is an account you can contribute to if you have a high-deductible health insurance plan, including Bronze and Catastrophic plans. The money you contribute to an HSA has three tax advantages:

• You don’t pay income tax on the contributions.
• The investments can grow tax-free.
• Withdrawals aren’t taxed if you use them for medical expenses.

How Can I Use the Money in an HSA?

You don’t have to wait until you’re retired to use the money. Qualified healthcare expenses for an HSA include: 

• Coinsurance: The percent you have to pay toward covered services
• Copayments: A fixed amount you pay for certain services
• Deductibles: The amount you pay first, before your insurance starts to pay
• Some dental, vision and drug expenses

If you are financially able to pay for these expenses as they come up when you’re working, you can leave the money in your HSA so it’s there for you when you retire.

It’s important to remember that if you withdraw money from a health savings account and use it for expenses that don’t qualify, you will have to pay income tax. If you’re not yet 65, you’ll also have to pay a 20% penalty.

Can I Use an HSA for Healthcare Premiums?    

If you are younger than 65, health insurance premiums are usually not eligible healthcare expenses for an HSA. If you’re planning to retire before you become eligible for Medicare at 65, you’ll need to build the cost of health insurance premiums into your personal budget.

There are exceptions to the rule.  You may be able to use HSA funds to pay for premiums if they are for:

• Medicare or other coverage if you are 65 or older (including Medicare Part B, Part D, and Medicare Advantage)
• Premiums through COBRA
• Coverage when you are receiving unemployment benefits
• Long-term care insurance

How Can I Use an HSA in Retirement?

When you retire, you can use the money in your health savings account to pay for the qualified healthcare expenses outlined above, and you don’t pay any taxes on the money you use for these expenses.

After age 65, the 20% penalty no longer applies if you use the funds for expenses that don’t qualify. But you have to pay income tax on money you use that’s not considered an eligible health or medical expense. 

The Bottom Line

A health savings account can be a key part of your plan for retirement, since it offers tax-advantaged ways to cover your healthcare costs, and you have access to the money to pay for medical expenses if you need it when you’re younger.

Get Professional Advice for Retirement Planning

Talk to Farm Bureau to learn more about preparing for and protecting your retirement.