The HSA as a retirement planning tool?

You know that the health savings account (HSA) that accompanies your employees’ high deductible health plan can help cover qualified out-of-pocket medical costs. But did you know that the HSA also can be used as a retirement vehicle? It’s true. In fact, according to the Employee Benefit Research Institute a person contributing for 40 years to an HSA could save up to $360,000 if the rate of return was 2.5 percent, $600,000 if the rate of return was 5 percent, and nearly $1.1 million if the rate of return was 7.5 percent, and if there were no withdrawals.1

Zahoor ElahiAfter age 65, employees can access the account for non-medical expenses without penalty. The withdrawals will be taxed as income (like a traditional IRA).

Granted, for most employees not withdrawing from an HSA for 40 years is unrealistic. But considering that IRS contribution limits in 2014 are $3,300 for individuals and $6,550 for families, it’s conceivable that employees can let a considerable amount of money in the account roll over into the next year, the following year and so on. These funds get a triple tax benefit:

  1. The money contributed reduces taxable income
  2. It grows tax-free
  3. Withdrawals are tax-free if used for qualified health expenses

By choosing to pay health care costs with other savings, the HSA continues to grow and becomes a longer-term savings vehicle. Employees can further grow savings for retirement by investing the savings after the account hits a certain threshold, typically $2,000. Investment options vary based on the HSA. Optum Bank, for example, offers over 20 mutual fund options. (Investments are not FDIC insured, not guaranteed by Optum Bank and may lose value.)

Every employee is different with a unique individual or family experience. The beauty of the health savings account is that it allows employees to take a personalized approach to both health and savings, so they can make decisions to enrich their lives today and in retirement. For more information on HSA investment services, visit

Try our Health Savings checkup tool to see how much money you will need in retirement to pay for health care.

–Zahoor Elahi

  1. Employee Benefit Research Institute. Accessed 10/23/14.

Leave a Reply