HSAs: Your Retirement & Beyond

Can I Retire on Funds from My HSA?

To retire comfortably, you’ll probably need more income than an HSA alone can provide. For most Americans, that income will probably come from a combination of sources: Social Security, employer-sponsored pension plans, and personal savings in accounts like 401(k)s and IRAs. Your HSA can be a part of that — even a big part. But HSAs aren’t designed to be your primary retirement savings vehicle. Use a 401(k), SEP, IRA, or Keogh plan to provide for your retirement income. Use an HSA to give that income a hefty supplement.

After you reach age 65, you can use your accumulated HSA funds (which can include interest or dividends from stock funds, bonds, or other high-yield instruments) for other things besides health care. After retirement, money you withdraw and use for non-qualifying expenses is taxed at the normal rate for investment income. However, money you use for qualifying expenses later in life — such as nursing home costs — can still be withdrawn with no tax paid. It is entirely tax-free.

Death Benefits

The money saved in an HSA is considered an “inheritable asset” subject to estate tax. Taxes may be paid by your heirs or assigns in the year the funds are released from your estate, at the same rate as other inherited, previously untaxed income. Under the current law, the entire amount may pass to a surviving spouse without estate tax.