How Can Health Savings Accounts Be A Powerful Tool For Retirement Planning? – Finger Financial Five #111

“Why take the stairs if you can ride the elevator?” – Jeremy Finger

I am always looking for ways to make retirement planning more efficient. 

To that end, Health Savings Accounts can be a powerful retirement planning tool.

How can a Health Savings Account be a retirement planning account?

HSA’s as they are often called, offer triple tax benefits

  1. Contributions are tax deductible like some traditional IRA contributions.
  2. The contributions grow tax-free
  3. Money can be withdrawn tax-free, if it is used for qualified medical expenses.

Can anyone contribute to a Health Savings Account? 

No, you must qualify. 

You must have a high deductible healthcare plan that qualifies for HSA and be under 65 years old. 

You can own the HSA and let it grow even if you change to a healthcare plan that is no longer high deductible. 

How can Health Savings Accounts be used for retirement?

Invest the money inside the HSA like you would in your IRA. Let that money grow for your retirement. Think of it as an extra ROTH IRA. 

You can withdraw money from a Health Savings Account at retirement for tax-free income, if done properly (more on this later).  

Once the HSA is established, use out-of-pocket money to pay for medical expenses. Save your receipts. Using money out of pocket allows your HSA to continue to grow for retirement. The longer you leave the money invested, the greater the compounded growth. 

How do you make qualified withdrawals from a Health Savings Account? 

Unlike flexible spending accounts or health reimbursement accounts, an individual does not need to “substantiate” a medical expense before the withdrawal. 

You can take money out of your HSA at any time to offset medical expenses. Your medical expense does NOT have to happen in the year of the withdrawal. Those medical expenses could have been from years before. In other words, if you spend money on medical expenses in your 30s, you can use those receipts and withdraw money from HSA when you are in your 60s tax-free. 

Your receipts don’t expire. Save your medical receipts. You can use cloud-based software to save files like Box.com or Dropbox.com. You can also take a picture of the receipt with your phone and save that to a separate folder in your photos. I suggest naming that folder “Healthcare”. Make sure you have a backup of your photos. I use iCloud for backup for my iPhone. 

What if you pass away with a Health Savings Account? 

HSAs are owned by the individual. If you pass away, it goes to your spouse. They can continue to use that HSA as their own. However, don’t leave it to a non-spouse. Non-spouse beneficiaries will be taxed on withdrawals like IRA. It is best for you to liquidate that account tax-free with withdrawals prior to death. 

What are the penalties for non-qualified withdrawals? 

There is a 20% penalty if you take non-qualified withdrawals before age 65. After reaching 65 years of age or becoming disabled, money can be withdrawn without penalty.   This is similar to a traditional IRA withdrawal.    

Feel free to ask us any questions or click here to set up a phone appointment. Happy to help.

Interesting way to think about levels of wealth:

1) I’m not stressed about food or shelter
2) I’m not stressed about debt
3) I don’t care what stuff costs in restaurants
4) I don’t care what vacations cost
5) I’m giving the majority of it away

Read more about this here.

On the lighter side, I got Covid last week and missed my fishing trip to Costa Rica. Those that went, caught a ton of fish. I caught up on some reading and watched too much TV. I would recommend the show on Netflix, From Scratch

Hope all is well with you and your family,


Finger Financial Five – 5 points in 5 minutes or less – is to provide you with a weekly shot of useful financial information.  My intention is to share principles, so that you will have more clarity and peace, that help you make better financial decisions.

Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor; DBA Riverbend Wealth Management.

This content is developed from sources believed to be providing accurate information and provided by Riverbend Wealth Management. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stratos Wealth Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.


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