HSAs are the Ultimate Retirement Account By: Roland SalmiMBA, AIF® 2021.03.03

A Health Savings Account (HSA) is a tax-advantaged savings account available for those who are enrolled in a high-deductible health insurance plan (HDHP). High deductible plans have become more popular in the employer marketplace so has offering HSAs. An HSA provides a tax incentive to motivate individuals to save for those out-of-pocket costs that are related to the higher deductibles. While an HSA isn’t technically a retirement plan it does come with a triple tax advantage: contributions, earnings, and withdrawals are all tax-free. You can use your HSA to pay for some or all of your qualified medical expenses each year and let the rest of the money in your HSA potentially grow for use in the future, including in retirement. Or in the best-case scenario you have the cash to pay your medical costs out of pocket and you can let your entire HSA grow tax-free for future qualified medical expenses. One of the best practices is to pay for medical expenses out of pocket when possible but keep track of all your medical receipts. Then later on you are able to take distributions whenever you want for the qualified medical expenses that you have paid out of pocket.


Assume you are healthy and only spend $300 a year on medical expenses. It will not be worth paying an excessive amount of money for an expensive full-service health insurance plan. In this case a cheaper high-deductible health plan (HDHP) with a lower monthly premium would be the better option. Since you are in a HDHP you can open an HSA and elect to max it out every year (2021 limits are $3,600 for individual coverage, and $7,200 for family coverage) and invest the account’s money in a low-cost index fund. Those contributions to the HSA are pre-tax, you are decreasing your taxable income by your contribution and therefore reducing your taxes. Again, if you keep your receipts you can withdraw the money for qualified medical expenses from your HSA at any time.

There are other important attributes to HSA's that employees should note. HSA’s are portable, you can transfer account balances in HSAs from any of your previous employers anytime you like. And unlike Flexible Spending Accounts (FSAs), HSAs are not subject to the “use-it-or-lose it” rule. Funds remain in your account from year to year, and any unused funds may be used to pay for future qualified medical expenses. Last but certainly not least is that your employer offers contributions take advantage of any employer contributions to your HSA. Combined with your contributions those funds can go a long way to meeting any anticipated qualified medical expenses.








Roland C. Salmi

Roland is an Associate Analyst at Westminster Consulting, where he executes performance analysis, client projects and investment support for senior consultants. Roland brings research knowledge, industry trends, and a commitment to client success to the Westminster team.

Prior to joining Westminster...

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