A Health Savings Account (HSA) is a type of investment account that allows you to save for medical expenses while also reducing your taxable income. In order to establish an HSA, you must be enrolled in a High Deductible Health Plan (HDHP) as defined by government regulations. An HSA is unique in that it is the only type of investment account that provides for both tax-deductible contributions and tax-free distributions (for qualified medical expenses). This unique feature makes the HSA a potential foundational piece of retirement planning due to the near certainty of incurring significant medical expenses during retirement. Some studies indicate that a married couple may expect to incur over $250,000 in health care related expenses during retirement which notably does not include long-term care expenditures.1

Most HSAs are utilized today as a tax preferred conduit to pay for current out-of-pocket medical expenses. In other words, the accounts are funded to a certain level of expected health care related expenditures and then routinely depleted. This approach is very effective and tax efficient for paying out-of-pocket medical expenses, but the HSA is not generally viewed as part of a longer term savings strategy.

Building a retirement health care nest-egg in an HSA alongside a retirement living expense nest-egg in traditional retirement savings accounts (i.e. IRA, Roth IRA, 401k, 403b, etc.) provides enormous tax benefits, efficiency, and flexibility all along the way  Contributions to the HSA are tax deductible, all earnings and growth accumulate with no immediate tax impact, and distributions for qualified medical expenses are completely tax free. It is also important to note that if you are fortunate enough to accumulate more funds in your HSA account than are needed for health care, the HSA account can be utilized for nonmedical expenditures after reaching age 65, similar to taking a distribution from an IRA account. In that situation, you would incur ordinary tax rates on the full distribution but no penalties. Prior to age 65, HSA distributions that are not used for qualified medical expenses incur ordinary tax rates plus a 20% penalty.

Steps to implement this savings strategy:

  • Enroll in an HSA eligible High Deductible Health Plan (HDHP).
  • Contribute the maximum amount each year (based on type of coverage) to the HSA account on a pre-tax basis.
  • As financial resources allow, pay for out-of-pocket medical expenses (i.e. deductibles, co-pays, prescriptions, etc.) from other sources in order to allow the HSA account to grow.
  • In consultation with your CCM advisor, invest the funds within your HSA account looking at the time horizon of your retirement years.
  • Access the HSA account on a tax-free basis during retirement to pay for Medicare premiums and other qualified medical expenses as they are incurred.
  • Utilize funds from other retirement savings vehicles to fund your retirement living expenses.

Please contact us with any questions about how a Health Savings Account may work for you as a planning strategy within your integrated wealth plan.


  1. https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs

NOTE: The information provided in this article is intended for clients of Carlson Capital Management. We recommend that individuals consult with a professional adviser familiar with their particular situation for advice concerning specific investment, accounting, tax, and legal matters before taking any action.

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