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Triple tax free - HSA (healthcare savings account) - The overlooked planning tool

Updated: Dec 29, 2021

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Pay less taxes, save more money

A healthcare Savings Accounts (A.K.A. HSA’s) are becoming more popular as high-deductible health-care plans (HDHP) with this option become the norm. According to the IRS a health savings account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. You must be an eligible individual to qualify for an HSA.”

Taking advantage of employer benefits now can also help people save for the future when healthcare expenses will be higher. So revisit your employer benefits to see if you have an HSA available. If you have an eligible HDP plan you pay for yourself either through the market place or from an outside insurance agent, and had an HSA in the past maybe from a previous employer, you can make contributions to that HSA account or open a new account if you've never had one before. That account is still yours even if you no longer work from that employer.

Triple Tax free Benefits

1 - Tax-deductible Contributions

Like an IRA (Individual Retirement account), contributions are tax-deductible (according to IRA limit rules). So taxes are reduced now, and HSA’s can be used in addition to IRA contributions (when applicable according to contribution rules) to further reduce taxes in a calendar year. As there is no income phase-out parameter (or income restrictions) on these accounts, (unlike with a Roth IRA) this creates an opportunity for an additional retirement vehicle – another “tool” in your retirement toolbox as they are triple tax free - which is especially important for high net worth clients looking to defer income and reduce their tax-burden or those looking to close the retirement gap.

2 - Tax-free Growth & Withdrawals

HSA’s grow tax-free, like a Roth IRA, and allow tax-free withdrawals for qualified medical expenses, such as deductibles and co-pays. This is particularly important in retirement when health-care costs will be higher. So it makes sense, from a long-term retirement strategy perspective, to fund an HSA (when permissible), allow it to take advantage of tax-free compounding, and withdraw from it later in life – funding current expenses from cash-flow of other disposable income when feasible.

3 - Ability to defer tax-free withdrawals

There is no time limit on receipts for qualified unreimbursed expenses incurred previously, when an individual owned an HSA. (Internal Revenue Bulletin: 2004-33) So a tax-free withdrawal can be made in future years based on those past receipts. So if you can afford to pay for healthcare costs out of pocket, AND contribute to an HSA, this can be even be a powerful tool for millennials for whom retirement is many years away. See the story below

For example:

Colleen had 18K in qualified expenses (let’ say for orthodontic expenses for her 3 children over a 5 year period) while having an HSA and she used a payment plan to pay for those expenses out-of-pocket. Years later, Colleen finds that it would be nice to have extra cash for that rental income property she is looking to acquire. She can get a tax-free withdrawal from her HSA now using those qualified receipts from the past.

NOTE: Be aware of HSA distribution rules, as well as penalties, and taxation for non-qualified medical distributions see IRS Publication 969.

Consult a Certified Financial Planner for comprehensive advice on strategies that address your specific retirement planning needs. See or

This content was developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice, and may not be used for the purpose of avoiding any federal tax penalties. Always consult legal or tax professionals for specific information regarding your individual situation/circumstances. Additionally, the opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security or service.

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