HSAs: Planning for Retirement
Are you prepared for health care costs in retirement?
If your retirement portfolio doesn’t include a Health Savings Account (HSA), it probably should.
Planning for retirement with an HSA
Health care expenses are one of the top financial worries in retirement — especially for people with health conditions. As you’re planning for the future, think about how your Health Savings Account (HSA) can help ease your mind and prepare you for retirement by saving money tax-free.
You can choose to invest your HSA funds
Once your HSA balance hits a predetermined threshold (typically $2,000), you can choose to transfer designated amounts over that threshold into an investment account. The goal for investing your HSA dollars is to achieve growth in your overall HSA balance. Any positive investment returns you realize are not taxed as income. This is how your HSA becomes a serious long-term investment tool that can play an even greater role in your overall wealth and retirement strategy. If you invest your HSA regularly and that investment compounds at an average of seven percent annual growth rate, that adds up quickly.
Optum Bank makes investing easy and more accessible for you by offering two investment opportunities.
Option 1: Optum Bank self-directed mutual funds: Choose from a wide variety of over 30 mutual funds, that average a four-star Morningstar rating and represent some of the lowest expense ratios in the industry, including life stage funds.
Option 2: Betterment digitally managed investments: Betterment helps take the guesswork out of investing your HSA. Based on your HSA investment goals, Betterment will recommend a personalized portfolio of low-cost exchange traded funds (ETFs) and help keep your HSA investment on track through auto-deposits and automated rebalancing.
Get ahead on taxes in more ways than one.
HSAs are triple tax advantaged, making them an effective savings and investment account:
- Withdrawals for qualified medical expenses are income tax-free.
- All contributions to an HSA are income tax-free.
- And, any interest earnings and investment growth from deposits are income tax-free.
Unlike other accounts, an HSA is one of the only savings vehicles that allows you to put money in on a before-tax basis through payroll contribution, grow your savings tax-free (interest and investment earnings are not taxed), and take the money out income tax-free for qualified medical expenses. With a 401k, you’ll always pay taxes when you withdraw funds but, if you use HSA funds for qualified medical expenses — it’s generally 100% income tax-free. Plus, after turning 65 you can use your HSA funds for non-qualified expenses. You’ll pay ordinary income tax on those funds, but the 20% tax penalty no longer applies.
Calculate your health care costs
Health care expenses are one of the biggest financial worries for retirement. It’s one thing to estimate costs using public averages and quite another to predict your potential health care costs.
The Health Savings Checkup tool from Optum Bank lets you see how specific health conditions could affect your health care costs in retirement. By answering just a few questions about your health, your HSA contributions and retirement goals, you will get an estimate of future health care costs that are then broken down by how much Medicare will cover, how much your HSA will cover and what you’ll be responsible for.
Hank saves for retirement with an HSA
Hank is 60 and preparing for retirement. For the past five years, he has been contributing the maximum amount allowed by the IRS. See how fast his account balance has grown — and how much he’s saved on taxes.*
Total Contributions
$39,500
over the past 5 years
saved over
$14,870
on taxes in the past 5 years
* Contributions are based on IRS contribution limits for family coverage from 2016-2020 and include catch-up contributions. Tax savings assumes a 25% federal tax rate, 5% state tax rate and 7.65% FICA.
