Health Savings Accounts (HSA) allow you to save money tax-free for medical expenses. They can be a good option for people of all ages, including those over 55. Here’s why.
What is an HSA?
An HSA accompanies a high-deductible health plan. With a high-deductible plan you generally pay lower monthly premiums, and an HSA lets you set aside pre-tax dollars to pay for qualified medical costs.
Contributions reduce your taxable income, withdrawals for eligible medical expenses are tax-free, and interest or investment growth in the account is not taxed. You can contribute to an HSA until you enroll in Medicare; after age 65 you may continue to use the funds tax-free for qualified medical expenses, and non-qualified withdrawals are treated as taxable income without the additional penalty that applies to younger account holders.
How do you qualify for an HSA?
You are eligible for an HSA if you are covered by a qualifying high-deductible health plan and do not have other disqualifying coverage. That often includes people who buy individual plans, the self-employed, or employees whose employers offer an HSA option.
How do you use an HSA?
Money in your HSA can be used to pay for eligible medical expenses. Common eligible items include:
- Acupuncture
- Chiropractic care
- Dental treatments
- Diagnostic services and lab tests
- Doctor and hospital fees
- Hearing aids and batteries
- Podiatrist visits
- Prescription medications
- Psychiatrist and psychologist visits
- Substance abuse treatment
- Vision care
If you withdraw HSA funds for non-qualified expenses before age 65, the withdrawn amount is taxable and generally subject to a 10% penalty in addition to income tax.
Understand the math
Compare real costs to see if an HSA and high-deductible plan fit your situation. For example, without an HSA one person might pay higher premiums and a lower deductible, while someone with an HSA pays lower premiums but a higher deductible and contributes to the HSA. Over time, the HSA holder can build a balance for future medical costs even if annual out-of-pocket spending is similar.
While both approaches can result in similar annual spending, an HSA also creates a tax-advantaged reserve for future care. You can review options for HSA custodians and related services through resources like Savings Institutions, Federally Chartered Insurance to help decide which account setup fits your needs.
An HSA can be a sensible choice if you are over 55, especially if you are in good health and avoid risky behaviors. To finalize your decision, talk to your agent about your specific needs and options.
Frequently Asked Questions
Can I contribute to an HSA after I turn 65?
You can contribute only while you remain enrolled in a qualifying high-deductible plan and are not enrolled in Medicare; after age 65 you may no longer contribute once you enroll in Medicare.
What happens if I use HSA money for non-medical expenses?
If you withdraw funds for non-qualified expenses before age 65, the amount is subject to income tax and typically a 10% penalty; after 65 withdrawals for non-medical expenses are taxed as income but not penalized.
Are HSA contributions tax-deductible?
Contributions are made with pre-tax dollars or are tax-deductible, which lowers your taxable income for the year you contribute.
Can I use my HSA for dental and vision care?
Yes, many dental and vision services and supplies qualify as eligible medical expenses when paid from an HSA.
How do I choose an HSA account or custodian?
Compare fees, investment options, and customer service among custodians to find an account that fits your needs; an insurance agent or financial advisor can also help you evaluate options.