Health Savings Account (HSA): Your Secret Retirement Plan

Attribution: www.SeniorLiving.Org

Attribution: www.SeniorLiving.Org

Early posting this week as I will be traveling for the 4th of July weekend.  Happy Independence Day!

In my previous post A Simple Step-wise Approach to Retirement Savings, I mentioned Health Savings Accounts (HSA) in Step 4.  Unfortunately it seems that despite its advantages,  the HSA remains less well known than other tax-advantaged investment vehicles.  Let's take a look:

What is the HSA?

A Health Savings Account (HSA) is a tax-advantaged medical savings plan for those enrolled in a High Deductible Health Plan (HDHP) - health plans that has a higher-than-traditional deductible.  (As of 2015, the minimum deductible for an HDHP is $1,300 for singles and $2,600 for families).  An HSA allows you to put money away into a savings account specifically earmarked for healthcare expenses.  But wait, that's not all...

What are the benefits?

  • You can put money into an HSA tax-free, like a traditional IRA.
  • You can withdraw money from an HSA at anytime tax-free, if used for medical expenses, like a ROTH IRA.  If you withdraw from an HSA for non-medical expenses prior to age 65, you will be subjected to a 20% penalty, similar to the 10% penalty when you withdraw early from an IRA.
  • When you hit age 65, the 20% penalty goes away, but any withdrawals for non-medical expenses will be taxed as ordinary income, like a traditional IRA.
  • Unlike a Flexible Spending Account (FSA), any unused money in an HSA is NOT lost at the end of the year.
  • You can invest the money in an HSA, like a 401(k) plan.


  • Currently the contribution limit to an HSA plan is $3,350/individual or $6,750/family per year.
  • If you are over age 55, you can contribute an additional $1,000 a year as catchup contribution.

Putting it all together.

Let me demonstrate why the HSA is not only the secret retirement plan that many ignore, but also may be the best.

  1. You invest money into your HSA every year, TAX-FREE.
  2. You manage your HSA funds like you would a 401(k) or IRA.
  3. You pay for your medical expenses out of pocket, saving all your receipts.
  4. You watch your HSA investments grow until you're 65, TAX-FREE.
  5. You withdraw from your HSA account.  This is where all those medical expense receipts come into play - remember that any qualified medical expense can be withdrawn from the HSA TAX-FREE!
  6. Any amount over your receipt total can be withdrawn without a penalty, although subjected to ordinary income taxes, like a traditional 401(k).

Do you qualify for a HDHP?  If so, it may be time to look at HSAs.





Future Proof, MD

Dr. Bo Liu is an aspiring radiologist-in-training and the founder and editor of the White Coat Money Blog.  He has an interest in interventional radiology and helping his medical colleagues get ahead in this mad world of medicine and money.  When he's not crushing the list at the PACS station or typing up your next favorite blog post, you can usually find him at the local badminton club, movie theater or the most recently opened restaurant.