Health Savings Accounts (HSA’s) Part 2

by | Aug 20, 2021 | WWC WorthWhile Reading

Last week we discussed some of the basics about Health Savings Accounts (HSA’s). We’re picking up right where we left off. This week we will discuss some alternative strategies for utilizing an HSA.


  1. An HSA can pay for prior year medical expenses: As long as the HSA was established before you incurred the medical expense (the establishment date is critical), an HSA can be used to reimburse that expense years later. For example, if an HSA was established in January 2020 and the medical expense incurred in June 2020, one could wait years before seeking reimbursement for that expense. The key is to maintain good records of expenses. As explained by the IRS, the HSA beneficiary “must keep records sufficient to later show that the distributions were exclusively to pay or reimburse qualified medical expenses, that the qualified medical expenses have not been previously paid or reimbursed from another source and that the medical expenses have not been taken as an itemized deduction in any prior taxable year.”


  1. An HSA makes for a good emergency fund: With this strategy, an HSA beneficiary pays for medical expenses from taxable accounts, but saves the medical receipts. Funds in the HSA continue to grow tax-free. When an emergency arises, you can seek reimbursement for past medical expenses sufficient to cover the emergency.


  1. An HSA can provide retirement benefits: The above strategy can also be used to save for retirement. Here, however, an HSA offers an interesting twist. Imagine you reach retirement having saved years of medical receipts. Reimbursement for these expenses are of course free of taxes. But what if you don’t have sufficient medical expenses to exhaust the HSA balance? In these circumstances an HSA acts similar to a traditional IRA. Distributions can be made from an HSA for non-medical expenses. These distributions will be taxed, just like a traditional IRA. For those 65 and older, however, there is no 20% penalty levied. Note that with an HSA, one needs to be 65 or older to avoid the penalty, not 59 1/2, which applies to IRA and 401k accounts.

We just love HSA’s and their versatility.  If you have a High Deductible Health Plan we strongly recommend opening an HSA as soon as possible. We are happy to meet with you and discuss potential HSA strategies.