Navigating senior care can feel overwhelming, especially when considering financial options. Many families wonder: Can an HSA pay for retirement home costs or long-term care? With the right planning, Health Savings Accounts (HSAs) can become a powerful tool for covering healthcare expenses, including long-term care, while providing a triple tax benefit that may surpass even a 401(k).
Let’s explore how HSAs work, how they can be applied toward long-term care, and how residents of Washington State can make the most of this financial resource.
What Makes HSAs Unique?
An HSA is a tax-advantaged account designed for individuals enrolled in a High-Deductible Health Plan (HDHP). HSAs are versatile, allowing you to save for medical expenses and offering potential tax advantages:
- Tax Deductible Contributions: You contribute pre-tax dollars to your account, either through your employer or directly.
- Tax-Deferred Growth: Your funds grow tax-free over time.
- Tax-Free Withdrawals: You can withdraw money tax-free for qualified medical expenses.
This “triple tax advantage” makes HSAs a highly effective savings tool, especially when used strategically for healthcare and retirement planning. Unlike a Flexible Spending Account (FSA), HSA funds roll over indefinitely, providing financial security as you age. They offer a smart way to prepare for medical costs in retirement while reducing tax liability.
Can HSA Funds Be Used for Long-Term Care?
Yes, but with important qualifications. HSAs can cover specific medical-related long-term care expenses, such as nursing care or therapy in a retirement home. It can also be used to cover long-term care insurance premiums. Here’s what you need to know:
Eligible Expenses
- Qualified Long-Term Care Insurance Premiums: You can pay for long-term care insurance premiums with HSA funds, up to annual IRS limits. For example, in 2024, the allowable amount was $4,710 for individuals aged 61–70 and $5,880 for those over 70.
- Medical Services in Assisted Living or Nursing Homes: If services are for medical care, such as physical therapy, they may qualify. Make sure to get a letter from your doctor stating medical necessity and verifying you or your loved one’s need for long-term care.
Limitations
- Room and Board Costs: Non-medical living expenses in retirement homes or assisted living typically aren’t covered directly by the HSA.
- Penalties for Non-Qualified Expenses: Before age 65, using HSA funds for non-qualified expenses results in a 20% penalty and income taxes. After age 65, you can withdraw for non-medical expenses without penalties, but the funds are taxed as income.
Maximizing HSA Benefits for Retirement and Long-Term Care
Save Strategically Before Retirement
You can contribute to an HSA if you have an HSA-eligible health plan. In 2023, contribution limits were $3,850 for self-only plans and $7,750 for family plans, with an additional $1,000 “catch-up” contribution for those 55 and older. Planning ahead allows your HSA funds to grow tax-free for decades.
Combine HSAs with Other Savings Tools
While HSAs are incredibly versatile, they work best as part of a broader strategy:
- Long-Term Care Insurance: This provides coverage for expenses not fully eligible for HSA funds.
- Retirement Savings Accounts: Using HSAs alongside tax-deferred accounts like a 401(k) or traditional IRA allows flexibility in retirement spending.
Plan for Medicare Premiums
After age 65, you can withdraw HSA funds tax-free to pay for Medicare Part B, Part D, and Medicare Advantage premiums—costs that typically add up to more than $120,000 per couple over a lifetime. Keep records of these expenses for reimbursement.
HSA Tips for Residents of Washington State
Washington State has unique healthcare programs and regulations, such as the Long-Term Care Trust Act, which may be able to assist with long-term care expenses. Residents can benefit by combining state programs with HSAs to maximize coverage and minimize out-of-pocket costs. Consulting with a local elder care advisor or financial planner can help tailor a plan to your needs. Check out our list of Preferred Professionals for outstanding legal and financial professionals in Washington State who can help you make the best choices when it comes to the financial aspects of long term care.
FAQs About HSAs for Long-Term Care
1. Can an HSA Pay for a Retirement Home?
An HSA can pay for medical-related services provided in the home. Non-medical costs, such as room and board, are not eligible. However, an HSA can also be used to pay for qualified long-term care insurance premiums; your long-term care insurance can then be used to pay for a retirement home.
2. What Happens to My HSA After Retirement?
HSA funds remain available and can continue to grow through interest or HSA investment options. After 65, non-medical withdrawals are taxed as income but no longer incur a penalty.
3. How Do I Ensure My Expenses Qualify?
Refer to IRS guidelines or consult a tax advisor. Keep detailed records, including receipts, Explanation of Benefits (EOBs), and IRS Form 8889 for annual reporting.
Take the Next Step with Concierge Care Advisors
Understanding how to navigate senior care financing is complex, but you don’t have to do it alone. At Concierge Care Advisors, we help families find the right senior care options to meet their needs, desires, and long-term budget requirements. Whether you’re searching for Lake Stevens senior living, assisted living in Auburn, or need help choosing the right adult family home, our experienced senior living advisors in Seattle (and throughout Washington State) provide personalized recommendations tailored to your needs.
As one of Washington’s top senior placement agencies, we are passionate about making sure your loved ones receive compassionate care in a supportive environment. Contact us today to connect with an elder care advisor who can help you make informed, confident decisions. Your family deserves the best, and we’re here to make that happen.
