HealthEquity blog

Retire strong with an HSA

Health and wealth

Preparing for retirement and old age can be a challenge, but everyone has to start thinking about it at some point in their lives. Many businesses offer retirement plans for employees, but how does an employer choose a plan that not only helps their team members but is also cost-effective and contributes to business goals? The answer might include considering your employees’ health and wealth together. Here’s what we mean:

Health and wealth

The stereotypical view of retirement is that of retirees traveling the world and living a comfortable life, free from the stress of work. However, a recent study estimates that a 65-year-old, healthy couple, will need roughly $266,000 just to cover Medicare premiums, not to mention all the other costs associated with retirement. The good news is that employers can help employees prepare for medical and non-medical expenses with two tax-advantaged retirement benefits: A 401(k) and a health savings account (HSA).

HSAs: The secret ingredient for retirement

Most employers are familiar with 401(k) plans. They provide a way for employees to invest money tax-free and use that money for retirement. In most cases however, when the money is taken out of the account, it is taxed as income. Despite the taxes, 401(k)s are still a great option for most people to build retirement “wealth.”

HSAs are a comparably new form of tax-advantaged account, but, unlike 401(k)s, they are not taxed at any point as long as the money is used for qualifying medical expenses (QMEs).1 Contributors can use the money for themselves or their dependents, and the funds can sometimes be invested to potentially grow the account even more. Any investment gains are also not taxed.1

In addition, HSA-qualified plans can usually help employers save money by lowering monthly health premiums since these plans usually cost less. This means that both employees and employers can take advantage of the savings offered.

Consider the future effect of tax savings

Remember that because of tax advantages for qualified medical expenses, you don’t have to worry about accounting for tax withholdings on HSA withdrawals in retirement. That means that if you had a $1,000 medical bill to pay in retirement, you would just withdraw $1,000 from your HSA to pay it. If you were to withdraw that money from your traditional 401(k) or IRA, you would have to account for taxes – making the withdrawal closer to $1,330 (based on a 25% tax liability overall). In this one example you would save around $330!


When employers offer their employees both a 401(k) and an HSA, they are helping employees build and manage a retirement nest egg. Both of these retirement options, especially HSAs, are tax-advantaged and give employees the opportunity to potentially maximize the “wealth” and “health” funds they will need as they grow older.

1HSAs are never taxed at a federal income tax level when used appropriately for qualified medical expenses. Also, most states recognize HSA funds as tax-free with very few exceptions. Please consult a tax advisor regarding your state’s specific rules.

Nothing in this communication is intended as legal, tax, financial or medical advice. Always consult a professional when making life changing decisions.

Topics: HSA, retirement, 401(k)

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