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Five Tips to Optimize Your HSA If You’re Nearing Retirement or Retired

Five Tips to Optimize Your HSA If You’re Nearing Retirement or Retired


Healthcare costs will be one of the largest expenses retirees face. Healthview estimates that the average couple will need over $387,000 in today’s dollars to pay for non-Medicare-covered healthcare expenses throughout retirement. If you’re getting close to retiring or are already retiring, it’s worth thinking about how you can most effectively pay for your medical expenses.

For those who are eligible, health savings accounts (HSAs) are unquestionably the most tax-advantaged way to save for healthcare costs.  But once you enroll in Medicare, you lose the ability to contribute to your HSA (although you can still use the funds currently in your account).

However, your HSA can be used to pay for Medicare parts B and D (once you turn 65), long-term care premiums, and long-term care, as well as your normal medical, vision, and dental expenses. Here are 5 strategies to help you squeeze every dollar into your HSA as you approach retirement and make best of your HSA once you’re retired:

1. Double Your Catch-Up Contribution

First, you and your spouse should both have your own HSAs by the time you each turn 55. This matters because once you turn 55, you’re allowed to contribute an extra $1,000 annually to your HSA in addition to your family contribution (in 2022, the family contribution limit is $7,300). However, both spouses can’t put their catch-up contributions into one HSA; you and your spouse both need HSAs in order to each contribute your extra $1,000. There’s no need to worry about whose account has more funds; each spouse can use their HSA dollars to pay for either spouse’s qualified medical expenses, Also, if your spouse is younger, that second HSA can be even more valuable, as you’ll see in the next point.

2. Shift HSA Contributions To Your Spouse

In many married couples, the breadwinner and insured party is the older of the two spouses. Often, that older spouse will enroll in Medicare as soon as possible, but in some cases they’ll continue to carry the family healthcare policy at work to cover their spouse. This presents an opportunity. As long as you’re otherwise HSA-eligible and covered by your spouse’s family health plan, you can still contribute to your HSA even if your spouse (the insurance holder) is ineligible. So while the older spouse can’t make HSA contributions, the younger spouse can still make a family contribution to his/her HSA. In addition, if the younger spouse is 55 or older, they can contribute an additional $1,000 annually.

3. Lower Your Taxable Income By Shoeboxing

A tried-and-true strategy for growing your HSA is shoeboxing your receipts, investing your funds, then reimbursing yourself in retirement (there’s no deadline for when you have to reimburse yourself for eligible expenses). If you’re attempting to minimize tax liability, the ability to generate income from your HSA by reimbursing yourself for prior, or current, medical expenses can be quite helpful. Additionally, HSAs have no required minimum distributions, and withdrawals from your HSA for medical events do not count as taxable income. This give the savvy retiree an opportunity to balance HSA reimbursements and 401(k) withdrawals to minimize their taxable income and potentially avoid being means-tested on their Medicare Parts B and D premiums.

4. Postpone Medicare Enrollment

If you are employed and covered by your employer’s health care plan, you may be able to postpone enrollment in Medicare. (Note: if you are currently receiving any kind of Social Security or railroad retirement benefits, you are automatically enrolled in part A of Medicare and this tip no longer applies.) Postponing your enrollment in Medicare and your acceptance of Social Security retirement benefits allows you to extend your eligibility to make contributions to your HSA. There are some requirements you must meet, though: You must be employed and covered by health insurance through your current employer, and your insurance must be what is known as creditable coverage (most employer-sponsored plans meet this criteria). To be on the safe side, always check with Medicare at to check your insurance. And be aware, there are some specific timing requirements you must meet when transitioning from your employer plan to Medicare after postponing your Medicare enrollment.

5. Build Up A Medical Emergency Fund

We’ll all heard the importance of keeping a robust emergency fund in case you incur unexpected costs or lose income. Using your HSA as a medical emergency fund can help you stay prepared for any unforeseen healthcare expenses you may face. HealthSavings offers a FDIC-insured savings account that is well-suited as a medical emergency fund; when you have a medical expense, you can quickly withdraw funds tax-free to pay for it. And, you can easily move invested HSA dollars to your savings account and vice-versa as your needs change.

By making these simple tweaks to your HSA, you can prepare for future healthcare costs and help create a comfortable retirement for yourself. And HSAs can also help pass along your funds to the ones you care about after you’re gone; learn about HSAs’ importance in estate planning here.