Please ensure Javascript is enabled for purposes of website accessibility

55% of Older Workers Are Missing Out on This Key Savings Opportunity

By Maurie Backman – Sep 18, 2019 at 8:47AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If you're one of them, consider this an important wake-up call.

It's no secret that healthcare is a major burden for seniors. In fact, 79% of future retirees aged 50 and over cite healthcare costs as their top retirement concern, according to new data from Nationwide. Yet that same survey shows that 55% of older workers who have the option to fund a health savings account, or HSA, don't contribute to one.

If you're eligible to participate in an HSA, doing so could be your ticket to more manageable healthcare costs during your golden years. And if you don't take advantage of this key savings opportunity, you'll likely regret it down the line.

How HSAs work

Many people tend to confuse HSAs with flexible spending accounts, or FSAs, even though the two are very different. While both plans are designed to help you pay for healthcare expenses in a tax-advantaged manner, with an FSA, you're required to use up your plan balance year after year or risk forfeiting it, and you can't invest the funds you're not using.

Middle-aged man, with a serious look on his face, resting his head on his left hand.


An HSA, on the other hand, is more of a long-term savings and investment account. The money you put into an HSA does not have to be used up on a yearly basis. In fact, the best way to benefit from an HSA is to contribute more money than you expect to use in the near term, invest your balance, and let it grow into a larger sum so that it's available to you later in life -- namely, during retirement.

Like FSAs, HSA contributions go in on a pre-tax basis. Currently, you can contribute up to $3,500 to an HSA as an individual or up to $7,000 as a family. If you're 55 or older, you get to contribute an extra $1,000 on top of whichever limit you qualify for. Furthermore, some employers fund HSAs on their employees' behalf, much like they offer matching contributions for 401(k) plans.

Not only can you save money on income taxes by funding an HSA, but once you invest in one of these accounts, you're not liable for taxes on associated investment gains provided you take withdrawals for qualified medical purposes. These include expenses like doctor visit copays, prescriptions, and durable medical equipment. Furthermore, your withdrawals themselves are also tax-free -- provided, once again, that they're used for healthcare expenses only.

HSA eligibility

Not everyone can fund an HSA. To qualify, you must be on a high-deductible health insurance plan, which means a deductible of $1,350 or more for individual coverage or $2,700 or more for family coverage. You also must have an annual out-of-pocket maximum of $6,750 as an individual or $13,500 as a family. If you're already receiving Medicare benefits, you're barred from making HSA contributions as well -- even if you're still working.

If you are eligible to fund an HSA, passing up that opportunity is a big mistake. That's because HSAs offer more tax benefits than popular retirement savings plans like IRAs and 401(k)s. With a traditional IRA or 401(k), your contributions go in tax-free, and your investment gains in your account are tax-deferred (which means they are delayed but not tax-free), with withdrawals being taxed. HSAs, by contrast, provide a triple tax advantage when used for their intended purpose -- your contributions are tax-free and you avoid taxes on both investment gains and withdrawals.

Chances are, healthcare will be one of your most substantial expenses once you retire. By contributing to an HSA during your working years, you'll have a dedicated set of funds on hand to cover your medical costs once your paycheck disappears. And that's a good way to buy yourself some peace of mind for the future.

The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.