HSAs – Not Just a Handy Savings Account

Most people think of their Health Savings Accounts (HSA) as just a handy, tax deductible savings account to pull funds out of to pay medical bills.  But is there a better way to use your HSA?  If you have the means to pay your medical bills out of pocket (or the good fortune to be healthy and not have many or any medical bills) the rules for HSAs allow flexibility on when you use your funds.  Even though there is a limit on how much you can contribute each year there is no set amount that you are required to withdraw each year.  HSA funds may be saved and invested for the long term for use during retirement and more.

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Here are some ideas:

  • You have carefully saved your receipts for qualified health care expenses for every year you have had an HSA but have never withdrawn any funds from the HSA account. Now you need extra funds for a down payment on a house, a new car or a remodel project.  Use the receipts and re-pay yourself from your HSA.  Check with your accountant for reporting requirements before using this strategy!


  • A recent Morningstar report estimated that 52% of people turning age 65 will need some kind of long-term care services. HSA funds may be used to pay for all or part of your long-term care premiums.  There are allowable limits on the amount, based on your age, set by the IRS.


  • If your spouse is the named beneficiary on your HSA account he or she will get the same tax benefits, the account will continue to grow tax-free after your death and the funds will be available for your spouse’s medical needs. If you name your child or anyone besides your spouse as the beneficiary, the funds will be considered taxable income in the year they are received.


  • You have a large, unexpected medical expense that you do not have the cash to cover out of pocket. Once in your lifetime, the IRS will allow an IRA to HSA transfer.  While accessing your retirement funds is never a great idea, it may be preferable to credit card interest.


  • After age 65, you are allowed to withdraw and use HSA funds for anything without penalties. However, if the funds are not used for qualified medical expenses, they will be taxable when they are withdrawn.