{"id":225,"date":"2020-04-14T00:19:56","date_gmt":"2020-04-14T00:19:56","guid":{"rendered":"https:\/\/moneywithkatie.com\/how-to-turn-your-hsa-into-a-tax-free-retirement-account\/"},"modified":"2025-08-29T17:00:34","modified_gmt":"2025-08-29T17:00:34","slug":"how-to-turn-your-hsa-into-a-tax-free-retirement-account","status":"publish","type":"post","link":"https:\/\/moneywithkatie.com\/how-to-turn-your-hsa-into-a-tax-free-retirement-account\/","title":{"rendered":"How to Turn Your HSA into a Tax-Free Retirement Account"},"content":{"rendered":"<div class=\"sqs-html-content\" data-sqsp-text-block-content>\n<p class=\"\" style=\"white-space:pre-wrap;\">The HSA\u2014or Health Savings Account\u2014is a wunderkind of the tax code. <\/p>\n<ul data-rte-list=\"default\">\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\">The HSA is different from the 401(k) as a tax savings vehicle because\u2014if you make payroll contributions\u2014<a href=\"https:\/\/www.bendhsa.com\/blog\/hsas-and-their-tax-benefits-for-employers#:~:text=Their%20HSA%20contributions%20are%20100,to%20income%20and%20FICA%20taxes.\" target=\"_blank\"><span style=\"text-decoration:underline\">you don\u2019t pay the 7.65% FICA tax<\/span><\/a> on them.<\/p>\n<\/li>\n<\/ul>\n<ul data-rte-list=\"default\">\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\">The HSA is the <a href=\"https:\/\/advisor.morganstanley.com\/the-fortis-group-10825236\/articles\/retirement\/HSAs-retirement-savings\" target=\"_blank\"><span style=\"text-decoration:underline\">only investment vehicle<\/span><\/a> that has the potential for funds to go in tax-free, be invested and grow tax-free, and come out tax-free, if they\u2019re used for qualified medical expenses.<\/p>\n<\/li>\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\">If you don\u2019t end up using the money for qualified medical expenses, your HSA functionally <a href=\"https:\/\/hsastore.com\/learn-future-healthy-hsa-age-65.html#\" target=\"_blank\"><span style=\"text-decoration:underline\">morphs into an IRA<\/span><\/a> when you turn 65, making it a wonderful complement to your other retirement accounts later in life. (You\u2019ll pay taxes on your distributions like you would with a Traditional IRA if you don\u2019t use them for medical expenses, but there aren\u2019t any penalties for doing so.)<\/p>\n<\/li>\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\">Lastly, there are <a href=\"https:\/\/www.fidelity.com\/viewpoints\/wealth-management\/hsas-and-your-retirement#:~:text=For%20HSAs%2C%20there%20is%20no,and%20for%20years%20to%20come.\" target=\"_blank\"><span style=\"text-decoration:underline\">no required minimum distributions<\/span><\/a>! While the government might force you to begin taking withdrawals from your other pre-tax accounts after age 73 depending on the balance, the HSA isn\u2019t subject to these.<\/p>\n<\/li>\n<\/ul>\n<p class=\"\" style=\"white-space:pre-wrap;\">If your company\u2019s healthcare plan is HSA-eligible, drop everything you\u2019re doing and start contributing to it. Yesterday. Do not sleep on the Health Savings Account!<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\"><strong>Let\u2019s back up, shall we?<\/strong> If you\u2019re like, WTF is an HSA and WHY should I care, allow me to cover the basics.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">If you have a high-deductible health insurance plan, you\u2019re eligible for a Health Savings Account. The HSA is a tax-free vehicle intended to be used for medical costs. Let\u2019s say you hit up the dermatologist and your health insurance is all, \u201cDeal with your acne yourself!\u201d You can use funds in your HSA to pay for your zit cream.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">There are some obvious tax benefits to utilizing your HSA, and I&#8217;ve found myself grilling both friends and coworkers about whether or not they&#8217;re maximizing this hidden gem.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">\u200bFor one thing,&nbsp;<strong>the money you contribute reduces your taxable income<\/strong>. As of 2025, the HSA contribution limit for an individual is $4,300\u2014so if you put $4,300 in your HSA, it reduces your salary (in the eyes of the IRS) by that much. If you\u2019re someone who\u2019s right on the cusp of a higher tax bracket, this might be a good way to skirt the higher tax dig.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">Moreover, the money you put in goes in tax-free, grows tax-free (because you can invest the funds inside it), and comes out tax-free (so if you\u2019re like,&nbsp;<em>Hey, I\u2019m going to pay for this zit cream with my money either way<\/em>,&nbsp;this is a way for you to avoid paying ANY TAXES on that money).<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">But let\u2019s say you\u2019re someone who literally never has health issues. UTIs? Never heard of them. Glasses? 20\/20 vision. You\u2019re the walking picture of health.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">Two things:<\/p>\n<ol data-rte-list=\"default\">\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\">You probably won\u2019t ALWAYS be, so any money you save in this account can be used for medical expenses 30 years down the road because you tweak your back playing with your pet robot (not to be confused with the FSA, which resets every year and is a raw deal, in this reporter\u2019s opinion).<\/p>\n<\/li>\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\">I reiterate: If you retain your invincible status to old age, once you\u2019re 65,&nbsp;<strong>the HSA functions like a Traditional IRA (Individual Retirement Account)<\/strong>&nbsp;and withdrawals will be taxed in your tax bracket when you take it out (but it went in tax-free and GREW tax-deferred, which is #YUGE).<\/p>\n<\/li>\n<\/ol>\n<p class=\"\" style=\"white-space:pre-wrap;\">It\u2019s a win\/win.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">You don\u2019t have to contribute anything crazy\u2014definitely take care of your 401(k) and contribute up to your company match first (<em>and if you\u2019re not doing that, start doing it\u2014last week<\/em>).<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">But if you\u2019ve got a few extra hundred bucks hanging around each month in your checking account, direct them to your HSA instead so they can grow and help you avoid taxes. Woohoo! #FederalGovernmentWho?<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">The HSA is also the reason why high-deductible plans can end up being net-cheaper than low-deductible plans, even if you end up hitting your deductible. <a href=\"\/blog\/the-hsa-and-high-deductible-plan-are-cheaper-for-these-tax-brackets\" target=\"_blank\">More here<\/a>.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>The HSA\u2014or Health Savings Account\u2014is a wunderkind of the tax code. The HSA is different from the 401(k) as a tax savings vehicle because\u2014if you make payroll contributions\u2014you don\u2019t pay the 7.65% FICA tax on them. The HSA is the only investment vehicle that has the potential for funds to go in tax-free, be invested [&hellip;]<\/p>\n","protected":false},"author":178814,"featured_media":2404,"comment_status":"closed","ping_status":"open","sticky":false,"template":"si-template-single-post-healthcare-and-hsas.php","format":"standard","meta":{"footnotes":""},"categories":[37,35],"tags":[46,60],"class_list":["post-225","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-financial-independence","category-investing-and-taxes","tag-healthcare-and-hsas","tag-popular-healthcare-and-hsas"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>How to Turn Your HSA into a Tax-Free Retirement Account - Money with Katie<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/moneywithkatie.com\/how-to-turn-your-hsa-into-a-tax-free-retirement-account\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How to Turn Your HSA into a Tax-Free Retirement Account - Money with Katie\" \/>\n<meta property=\"og:description\" content=\"The HSA\u2014or Health Savings Account\u2014is a wunderkind of the tax code. The HSA is different from the 401(k) as a tax savings vehicle because\u2014if you make payroll contributions\u2014you don\u2019t pay the 7.65% FICA tax on them. 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