Why Retirees Are Flocking to This One Retirement Account

Happy senior couple using the laptop at home.
FG Trade / Getty Images

Retirement savings plans in the U.S. usually focus on 401(k) accounts, IRAs or pensions, but there’s another option that has begun to draw interest from an increasing number of older Americans: health savings accounts.

One reason more retirees are flocking to HSAs is because of changes that kick in next year to account for high inflation. For 2024, the annual contribution limit for self-only HSA plans will rise to $4,150 from $3,850 in 2023, CNBC reported. The cap for family plans will increase to $8,300 from $7,750. The catch-up contribution for HSA accountholders age 55 and older will stay at $1,000 each.

Those changes represent a “significant increase” compared with historic HSA inflation adjustments, according to Ashton Lawrence, a certified financial planner and director at Mariner Wealth Advisors in Greenville, South Carolina.

Prior to 2022 — when inflation hit a 40-year high — the average annual increase for the HSA contribution limit was about 1.6% a year, Lawrence told CNBC. In contrast, the increase from 2023 to 2024 for self-only and family plans will be about 8% and 7%, respectively.

“It’s extremely advantageous for clients,” Lawrence said.

Health savings accounts aren’t often thought about as “retirement” accounts. Instead, they’re designed to help people on high-deductible health insurance plans pay their medical bills, The Motley Fool reported.

But you can also invest your HSA funds before the medical bills are due, and if you opt to pay medical bills with money outside your HSA, it will “allow the investments in your HSA to grow all the way until retirement,” according to Motley Fool.

Are You Retirement Ready?

To qualify for HSA contributions, you must have a high-deductible health insurance plan. Qualifying plans also require a deductible of at least $1,600 for self-only coverage or $3,200 for a family plan in 2024, CNBC reported.

In addition to helping prop up retirement savings, health savings accounts offer these other benefits, according to the IRS:

  • You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you don’t itemize your deductions on Schedule A (Form 1040).
  • Contributions to your HSA made by your employer — including contributions made through a cafeteria plan — can be excluded from your gross income.
  • HSA contributions remain in your account until you use them.
  • The interest or other earnings on the assets in the account are tax free.
  • Distributions may be tax free if you pay qualified medical expenses.
  • An HSA stays with you even if you change employers or leave the work force.

“Clients often overlook the investment and tax planning benefits of an HSA,” Judy Brown, a CFP and senior financial advisor at SC&H Group, told CNBC.

Other advantages cited by Motley Fool are that you don’t pay Social Security or Medicare taxes on payroll deductions contributed to an HSA, and you don’t pay taxes on capital gains or dividends in the account. These can lead to a “significant reduction” in your tax bill.

More From GOBankingRates

Are You Retirement Ready?


See Today's Best
Banking Offers