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.

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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).

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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 (opens in new tab).

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.

Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.