What Happens to Your HSA When You Retire?Submitted by FSB Premier Wealth Management on September 29th, 2014
A Health Savings Account (H.S.A) paired with a high-deductible health insurance plan can be a great way for people to save for their medical expenses. One of the best features of a H.S.A is that participants are able to roll over their unspent balances to the next year. But what happens if a participant doesn’t spend all of the funds in their account by the time they get to retirement? Generally, they can continue to use their account balance tax-free for qualifying out-of-pocket health expenses. If a person has retiree health benefits through their former employer, they can also use their account to pay for their share of retiree medical insurance premiums. When they enroll in Medicare, they can use their account to pay Medicare premiums, deductibles, copays, and coinsurance under any part of Medicare. The one expense they cannot use their account for is to purchase a Medicare supplemental insurance or "Medigap" policy. Once a person turns age 65, they can also use their account to pay for things other than medical expenses. If used for other expenses, the amount withdrawn will be taxable as income, but will not be subject to any other penalties. Individuals under age 65 who use their accounts for non-medical expenses must pay income tax and, generally, a 20% penalty on the amount withdrawn.
The flexibility of health savings accounts to not only help pay for qualified medical costs with pre-tax dollars, but also to be a potential source of retirement income, can make them a powerful component of your financial plan. If you have any questions about how a health savings account may fit into your plan, contact me today.
Jordan Alborn, CFP® - VP/Financial Advisor
FSB Premier Wealth Management, Inc.
This material is provided for general information and educational purposes based upon publicly available information from sources believed to be reliable. Any opinions expressed are my own, which are derived from my experience and background as a financial advisor. They do not represent those of my employer, FSB Premier Wealth Management, Inc., or any of its affiliates including Farmers State Bank.