Expert Perspectives

Squire provides complete and personalized accounting solutions to meet your individual needs.

Expert Perspectives

Squire provides complete and personalized accounting solutions to meet your individual needs.

Retirement Strategy Using an HSA

Retirement Strategy Using an HSA Thumbnail


Used properly, an HSA is a great way to build tax-free wealth via deductible contributions, investing for growth over time, and taking tax-free distributions and reimbursements later.


Hi, I’m Clayton Johnson from Squire Wealth Advisors and today I wanted to share a little bit about my favorite retirement account.

Likely you’ve heard about Roth IRA’s or traditional IRA’s or 401(k)’s that you probably get through your employer. But, the one that I like the most is one that’s referred to as the HSA or the Health Savings Account. If you have a high deductible health plan, you qualify for an HSA . Even if your employer doesn’t provide you with an HSA you can go to a third party and set up an HSA and have one for yourself.

Now the reason I like the HSA so much is that they offer the benefits of a traditional IRA and a Roth IRA. A traditional IRA typically will provide you a deduction on your taxes for whatever you contribute, so if you put in six thousand dollars into your traditional IRA on your tax return that year you get to input that as a deduction and it reduces your taxes. ARoth IRA is different in that you don’t get a deduction in the year that you make a contribution. That’s considered already taxed. But any growth to that Roth IRA money you can take out later and pay no taxes on it, which is great! For the traditional IRA, when you get the deduction this year the IRS then says, ‘okay we’re gonna tax the money later when you take it out in retirement’. So when you take out the money in retirement in an IRA you’re going to pay all of that as ordinary income tax.

The HSA takes the best from both, so when you put money into an HSA you get the deduction in this year just like in a traditional IRA and when you take money out later in life, if you use it for a qualified medical expense then it’s like the Roth IRA and you don’t pay any taxes on that distribution so it’s considered ‘extra’ tax-free.

Now here’s the kicker–and this is my very favorite part of an HSA–there is no lookback period on qualified medical expenses. So you could be in your thirties and you could have a baby, or someone breaks a leg and you hit your deductible on your health plan and you pull out 6,7,8 thousand dollars – if you keep track of that medical expense, thirty years from now when you’re sixty years old you can take out of your HSA and say ‘oh and by the way that was for that baby I had 30 years ago’ and it’s totally legitimate. There is no lookback period for medical expenses.

So one strategy that a lot of people do, which is so smart, is they will put money into their HSA and invest that money once it exceeded $2,000 – you can invest it into the stock market so the funds grow over a long period of time and in the meantime, they’re incurring medical expenses because life happens. So by the time they’re in their sixties, from age 30 to age 60 they have incurred $100-150,000 in medical expenses, let’s say, so their HSA is worth $150,000, they could pull all that out of the HSA and say ‘this is covering all the medical expenses that I incurred at age 30’, and they don’t have to pay taxes on it at all.

Now that’s not to say you don’t have to take that to someone and prove it. In the event that you are audited and someone from the IRS says ‘look, you took out this $150,000 and we are gonna need proof’. Then you go back and you’ll have to show that proof. So it may be that you never have to explain it at all but you’ll want to have evidence of those expenses, preferably receipts of those medical expenses.

Just wanted to share that quick tip with you guys! HSA’s are incredible. They’re great. If you have access to one I highly recommend you get one set up and start making contributions to it and, you know what, if you happen to need money in your early life in your thirties or forties and you’re thinking ‘oh I really don’t want to touch that HSA but I have these medical expenses’ there’s no harm in that either. Feel free to use it regularly as you have medical expenses. I just wanted to share one of the retirement strategies you can use an HSA for.