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Health Savings Account (HSA): What Happens to it When I Retire?

The Health Savings Account (HSA) is a great tool that is going to helpus all reduce our health insurance costs and avert the currenthealthcare crisis in America. But what happens when a personretires? What use is an HSA then?

Your HSA transforms itself at that moment you turn 65, when youofficially become eligible for Medicare. Your Health Savings Account,which will have served you all those years as a nice financial cushionbefore you begin using your insurance policy, flips into something very similar to an Individual Retirement Account (IRA).

That's right. An HSA essentially becomes an IRA when you turn65. The reason for that is that when you turn 65, you areeligible for Medicare, and HSAs are not meant to help you withMedicare, that is its own system.

So what happens to that money left over in your HSA? If youhaven't been sick much, there could be hundreds of thousands of dollarsin there!

Don't worry, it's safe. There is no "use it or lose it" policywith HSAs. That is one of the great things about the HSA.

No, your dutiful HSA has now become a retirement account. Nowthat you're 65, you can begin to pull money out of your HSA withoutpenalty and use it for anything. Use the moneyfor roller blades, dinner, a new computer, a car, or give it to yourkids. It's yours to do with what you want. No penalties forwithdrawing money.

However, remember, when you take money out of any IRA, that money istaxed by the IRS. You got a tax-deferral when you put the moneyin, and now you pay taxes to take the money out. Fair, isn't it?

If you want to avoid paying taxes on that money, no problem. Juststick to using the money for healthcare expenses (as approved in IRSPublication 502) and you won't pay taxes on the withdrawals, even afteryou're 65.

This is just one of the many ways HSAs are so useful and helpful forAmericans savings for their own healthcare. The HSA is available todayfrom many insurance agents and financial planners.

Daryl Kulak is the author of the book Health Insurance Offthe Grid. This easy-to-read book provides a simple,detailed plan to reduce health insurance expenses by thousands ofdollars for people who are self-employed, unemployed orunderinsured. The book is available at the Website: http://www.healthoffthegrid.com

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