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Approaching Retirement? Five Tips to Maximize Your Investment HSA

Approaching Retirement? Five Tips to Maximize Your Investment HSA


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, you need to be thinking about how you can most effectively put money away for medical expenses.

For those who are eligible, health savings accounts (HSAs) are unquestionably the most tax-advantaged way to save for healthcare costs. However, 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). And remember, your HSA can be used to pay for Medicare parts B and D (once you turn 65), long-term care premiums, 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:

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 2020, the family contribution limit is $7,100). 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.

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. Transfer & Invest Your HSA

Even if you can’t contribute to an HSA because you are in enrolled in Medicare, you can still grow your HSA by investing your funds. Most HSAs are still being held in low-interest checking accounts that aren’t doing much for your money. To make more money, you can move your balance to an investment-focused HSA, even if you no longer eligible to contribute to it.

Looking to move to a more investment-focused HSA? Here are 7 features you need to be thinking about.


The IRS has extended the tax deadline from April 15th to July 15th. Individuals may continue to make 2019 HSA contributions through July 15, 2020. Read more about Covid-19 >>