How do your employees’ Health Savings Accounts work at age 65 and older?
While Health Savings Account (HSA) withdrawals are only tax-free when used on eligible expenses, that’s a significant need for your employees as they age. Healthcare costs are the third-largest expense for retiree households, behind only housing and transportation. However, an HSA’s retirement perks get even better once the participant reaches age 65.
No penalties for ineligible expenses
When a Health Savings Account participant reaches age 65, they can pay for any expense with their HSA funds without facing a 20 percent tax penalty. For eligible expenses, the funds are spent tax-free like they always have been. For ineligible expenses, the funds would still be taxed.
Compare that with a traditional 401(k). If your retired employee withdrew funds, the funds would be taxed as income.
Paying for Medicare, long-term needs
Medicare is generally available to individuals once they turn 65. That opens up some added spending flexibility for those with a Health Savings Account. While HSA participants can’t contribute to an HSA while on Medicare, they can still withdraw funds.
If one of your employees purchases long-term care insurance, they can use HSA funds to pay for a variety of Medicare premiums and long-term care insurance premiums. However, there are limits on how much they can withdraw for long-term care insurance premiums.
Long-term care services are also HSA eligible, as long as the services otherwise qualify as medical care expenses.
Click here to learn more about Surency Flex Health Savings Accounts
The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own counsel.
Source: How Do Your Employees’ HSAs Work at Age 65? | WEX Inc.