retirement

You Don’t Need Earnings to Contribute to a Health Savings Account

Earned income isn’t a requirement to save in an HSA, but you do need an eligible high-deductible health insurance policy and you can’t be enrolled in Medicare.

I’m 58 and retired and buy my own health insurance. Can I contribute to a health savings account even though I don’t have any earned income?

Yes. HSAs don’t have the same earned-income requirements as IRAs. To qualify to make HSA contributions, you must have an HSA-eligible health insurance policy (with a deductible of at least $1,300 for individual coverage or $2,600 for family coverage in 2016) and you can’t be enrolled in Medicare Part A or Part B.

You can contribute up to $3,350 for single coverage or $6,750 for family coverage in 2016, plus a $1,000 catch-up contribution if you are 55 or older. The contributions are tax-deductible and you can use the money tax-free in any year for eligible medical expenses, including your deductible, co-payments and prescription drugs, plus out-of-pocket costs for dental and vision care and other medical expenses that aren’t covered by insurance. You can even use a portion of the money tax-free to pay for long-term-care insurance premiums based on your age (up to $1,460 in 2016 if you are age 51 to 60, for example).

You’ll get an even greater tax benefit if you don’t use the money in the HSA for medical expenses and instead let it grow. Then, if you keep your receipts, you can reimburse yourself from the account tax-free for any eligible medical expenses you incurred since you opened the HSA—even years later. Even though you can’t make new HSA contributions after you enroll in Medicare, you can continue to make tax-free withdrawals for eligible medical expenses at any age and also use the money tax-free to pay for Medicare Part B, Part D and Medicare Advantage premiums (medigap does not qualify).

If you decide to save in the HSA long term, look for an HSA administrator that lets you invest in mutual funds rather than just a savings account. Some HSA administrators have tools that help you keep track of eligible medical expenses you paid in cash, so you can withdraw the money from the HSA tax-free later. You can find an HSA administrator at www.hsasearch.com.

If you use HSA money for nonmedical expenses before age 65, you’ll owe a 20% penalty plus taxes on the withdrawals. After that age, you’ll avoid the penalty but will still need to pay taxes on nonmedical withdrawals.

For more information, see 5 Ways to Ease the Pain of Health Care Costs in Retirement.

Most Popular

Dying Careers You May Want to Steer Clear Of
careers

Dying Careers You May Want to Steer Clear Of

It’s tough to change, but your job could depend on it. Be flexible in your career goals – and talk with your kids about their own aspirations, because…
September 13, 2021
5 Top Dividend Aristocrats to Beef Up Your Portfolio
dividend stocks

5 Top Dividend Aristocrats to Beef Up Your Portfolio

The 65-member Dividend Aristocrats are among the market's best sources of reliable, predictable income. But these five stand out as truly elite.
September 14, 2021
7 Best Commodity Stocks to Play the Coming Boom
commodities

7 Best Commodity Stocks to Play the Coming Boom

These seven commodity stocks are poised to take advantage of a unique confluence of events. Just mind the volatility.
September 8, 2021

Recommended

Your Doctor is Retiring. Here's How to Find a New Physician
health insurance

Your Doctor is Retiring. Here's How to Find a New Physician

More doctors are considering quitting due to burnout from the pandemic. If you must find a new physician, get recommendations from friends and review …
September 24, 2021
Tax Changes and Key Amounts for the 2021 Tax Year
tax law

Tax Changes and Key Amounts for the 2021 Tax Year

Americans are facing a long list of tax changes for the 2021 tax year. Smart taxpayers will start planning for them now.
September 23, 2021
You’re Being Robbed … You Just Don’t Know It
retirement

You’re Being Robbed … You Just Don’t Know It

For retirees especially, inflation risk should always be a top concern in your financial plan.
September 22, 2021
10 Ways You Could Avoid the 10% Early Retirement Penalty
retirement

10 Ways You Could Avoid the 10% Early Retirement Penalty

You’ve saved diligently in your 401(k), and you wouldn’t mind tapping into it – but you’re not age 59½ yet, so you could have to pay the IRS a 10% pen…
September 21, 2021