HSA contributions after retirement?

[Schulzes]

I am 61, recently retired, and have an existing Health Savings Account (HSA).  I'd like to get the long term tax advantages of this account, but I would have to take extra money out of my IRA accounts in order to continue contributing to the HSA.  Is this advisable from a tax perspective?

Thanks,

Steve

[AR_CPA]

Hello Schulzes, 

Yes, you can contribute to a health savings account, because you are the individual account owner and not on Medicare, you can still contribute to your HSA.  You do not have to have a job or earned income from employment to be eligible for an HSA – in other words, the money can be from your own personal savings, income from dividends, unemployment, etc.  You have to be enrolled in a qualified high deductible health plan (HDHP).  Once either spouse enrolls in Medicare, that spouse can no longer
contribute any funds, including catch-up amounts, to his or her Health Savings Account. 

See IRS Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans

So if you meet these requirement and are able to put money in your HSA account, that's great.  Of course, you will be saving tax dollars on that money. 

[Schulzes]

Hi AR_CPA.  I realize I can contribute to the HSA, but I would have to pull extra money from other investments (IRAs) in order to to this?  I'm trying to determine if this is advantageous.

[JesseW]

Hi Steve,

You are never required to contribute to your HSA, it is essentially an account created entirely for tax advantages. If you contribute to an HSA through your employer, then the contributions are not taxable. You can read more here: https://blog.turbotax.intuit.com/tax-tips/basics-of-health-savings-accounts-83/.

You can contribute outside of your job. There are no limits on your adjusted gross income for a contribution, but there are limits on how much you can contribute.

I hope this answers your question.

Take care,

Jesse W.

[SundayInSalem]

Moving money from a traditional IRA to an HSA produce no immediate tax savings. Your HSA deduction will equal the income from the IRA withdrawal, i.e., if you withdrew $5,000 from a traditional IRA you would have $5,000 in income. If you contributed that to an HSA you would have a $5,000 deduction.

What an HSA will do:

1. No minimum required distributions (RMDs). Unlike IRAs, you can keep money in an HSA until you die, so moving money into an HSA will lower the RMD amount for your IRA once you turn age 72.
2. Medical expenses. If you don’t itemise your deductions and/or do not have enough medical expenses to itemise deduction, moving money into an HSA and using that to pay medical expenses will give you some tax savings because HSA earnings are tax free and part of the money you take out will be HSA earnings.
3. IRA to HSA rollover. IRS also allows you to make a one-time rollover from an IRA to an HSA up to maximum amount of your HSA contribution for that year so you can make one tax-free transfer.