How to Think About HSAs for Retirement Savings


Health Savings Accounts (HSA) provide an extra layer of retirement benefits if used correctly. However, many people do not know the full potential of their HSA and follow common myths around HSAs causing them to leave retirement funds on the table.

Here are 5 tips Camelotta advises our clients to follow when thinking about HSAs:

1. Invest Your HSA Like You Would A Retirement Savings Account

Many plans allow for your HSA contributions to be invested. This allows for your HSA contributions to grow overtime and the investments grow tax-free! Therefore, we advise our clients to invest their HSA like they would any other tax deferred retirement account. Not sure what investments to choose? Get in touch with us and we can help analyze your investment offerings and make the best allocation for your needs.

2. Don’t Use It Before You Lose It

HSAs funds can be rolled over from year to year, remember it is a Health Savings Account. This means, unlike other medical spending accounts, you do not have to ‘use it before you lose it.’

Additionally, it may be beneficial to pay your current medical expenses out of pocket, letting your HSA contributions grow over time. You can get reimbursements for qualified medical expenses later if you keep your receipts.

At Camelotta we advise our clients to pay their medical expenses out of pocket, keep diligent records, wait while their investments grow, and then get the tax-free reimbursement for their qualified medical expense—this maximizes your gains and still gives you the tax advantage of an HSA.

3. Maximize Your Contributions

Your HSA contributions increases your potential for growth and helps minimize your tax bill. If you can contribute the full amount to your HSA each year you are maximizing the amount of money that will grow tax-free through your investments. You also reduce your tax bill, contributions to your HSA are tax deductible—or deducted from your paycheck pre-tax if you contribute through your employer.  Camelotta advises our clients to fund their HSA before funding their tax deferred retirement accounts. This way, our clients take full advantage of the tax-free growth for anything medical related.

*For 2021 individuals can contribute no more than $3,600 and families can contribute no more than $7,200.

4. Take Advantage of Tax-Free Healthcare Savings

There is a third tax advantage for HSAs you should consider taking advantage of, paying for qualified medical expenses tax free. After letting your contributions grow, you can use HSA fund to pay for qualified medical expenses, these withdrawals will not be taxed—and remember your contributions weren’t taxed either—so you are getting tax-free funds to pay for qualified medical expenses now or later in life.

*HSA qualified medical expenses do not include all medical premiums

5. Think of Your HSA Like an IRA

While HSAs provide tax-free benefits for qualified medical expenses, they also provide investors with another tax deferred account—We tell our clients to think of it like an IRA. HSA funds can be used for anything after the account holder turns 65; the funds used for anything other than medical expenses will be taxed as income when they are withdrawn—again just like an IRA.

*HSAs are not available for all investors, eligibility restrictions apply: Individual must be enrolled in a Hight Deductible Health Plan (HDHP), Not covered by Medicare, and cannot be claimed as a dependent on anyone else’s taxes.

*The IRS Defines 2021 HDHP as: A minimum Deductible of $1400 for Individuals and $2800 for families AND A Maximum Out Pocket of $7000 for individuals and $14000 for families.

Before Opening and funding an HSA you should seek advice from an advisor or tax professional to evaluate your specific situation. Want to get started? Get in touch with Camelotta Advisors today!

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Camelotta Advisors is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Camelotta Advisors and its representatives are properly licensed or exempt from licensure.  This website is solely for informational purposes.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Camelotta Advisors unless a client service agreement is in place.

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