Retired? Your HSA May Still Be Valuable
How to use HSA funds for medical expenses, aging-related purchases, and care after retirement.
When people retire, they often stop thinking about the Health Savings Account (HSA) they may have contributed to during their working years. Your HSA doesn't disappear when you retire, and you don't lose the money when you enroll in Medicare. In fact, those savings may become especially useful as healthcare needs increase with age.
Your HSA Money Is Still Yours
Unlike many employer-sponsored Flexible Spending Accounts (FSAs), an HSA doesn't have an annual use-it-or-lose-it rule. Any money remaining in your HSA carries forward from year to year. The account stays with you when you change jobs, retire, or leave the workforce. If you contributed to an HSA years ago, those funds may still be available to help pay for qualified medical expenses today.
Still Working? Consider Building Your HSA Before Retirement
To contribute, you generally must be enrolled in an HSA-eligible health plan, have no disqualifying additional coverage, and not be enrolled in Medicare or claimed as someone else's tax dependent. HSAs offer three important federal tax advantages:
Tax-deductible or pretax contributions: Eligible contributions can reduce taxable income.
Tax-free growth: Interest and investment earnings accumulate without federal income tax.
Tax-free medical withdrawals: Money used for qualified medical expenses isn't subject to federal income tax.
ACA enrollees can sign up for an HSA account. Imagine it as a 529 Vest for you and your spouse for later years.
If you can afford to pay current medical expenses from other savings, you may choose to leave your HSA invested for future healthcare needs. Investment options involve risk, and records should be retained for any expenses you intend to reimburse later. Annual contribution limits apply, and people age 55 and older who are eligible to contribute can generally make an additional $1,000 annual catch-up contribution.
What Happens to Your HSA When You Enroll in Medicare?
Once you're enrolled in Medicare, you can no longer make new contributions however, you
can use existing HSA funds to pay qualified medical expenses tax free. You may also use your HSA to pay certain Medicare premiums, including Part B and Part D. Medigap supplemental insurance premiums do not qualify.
Can You Use Your HSA for Your Spouse?
Yes. You can use your HSA tax-free to pay qualified medical expenses for your spouse.
Your spouse does not have to be covered by your health insurance plan, and they do not need to have an HSA of their own. For example, if you're still working and your spouse is retired and enrolled in Medicare, you may be able to use your HSA for their eligible hearing aids, prescriptions, mobility equipment, and other qualifying expenses. The expenses cannot already have been reimbursed by insurance or another source.
What Can You Buy with HSA Funds?
Prescription medications and many over-the-counter medicines
Hearing aids and batteries
Prescription eyeglasses and dental care
Walkers, wheelchairs, and medically necessary mobility equipment
Certain home modifications needed to accommodate a disability
Eligible incontinence supplies
Qualified long-term care services and certain long-term care insurance premiums, subject to applicable rules
Can HSA Funds Help Pay for Dementia Care?
Potentially, yes.
Certain long-term care services may qualify as medical expenses when an individual meets IRS requirements for chronic illness and receives care under a prescribed plan from a licensed healthcare practitioner. This can include qualifying personal care and supervision services. However, ordinary household assistance charges do not automatically qualify.
Families should review specific services and expenses with a qualified tax professional before using HSA funds.
Can Adult Children Use Their HSAs for Aging Parents?
No, an adult child cannot use their own HSA tax-free to purchase medical supplies for a financially independent parent.
For the expense to qualify, the parent must meet IRS dependency requirements, including the rule that the child provides more than half of the parent's support. Simply helping an aging parent, purchasing supplies for them, or managing their care does not automatically make their expenses HSA-eligible.
What to Do Now
If you're retired and previously contributed to an HSA, check whether you still have an account and how much money remains. If you're still working and eligible to contribute, consider building your HSA savings while you can through your employeer or, for the self employeed, the ACA Marketplace (Obamacare). And if married, remember that your HSA may help cover qualified medical expenses for both you and your spouse.
This article is for educational purposes and does not constitute tax, legal, or financial advice. HSA eligibility rules and qualified medical expenses are governed by IRS requirements.
