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HSA vs. 401k vs. IRA: How do These Retirement Accounts Stack up?

HSA vs. 401k vs. IRA: How do These Retirement Accounts Stack up?

How is your HSA versus your 401(k) versus your IRA shaping up for retirement planning? Retirement planning is a lot easier when you imagine what you want it to be like. As Tori Dunlap of Her First $100K said at HSA Day, “I’ve gotten (millennials) to care because I have them picture 65-year-old them.”

Are you planning to retire in Florida, or in a cabin in the woods? The average 65-year-old couple retiring today will need $351,000 to cover healthcare and medical costs in retirement. Even though Medicare helps pay for the healthcare needs of 63 million people, most recipients still spend thousands each year on out-of-pocket expenses. To help you prepare, here is a breakdown of three common retirement accounts: an HSA vs. a 401(k) vs. an IRA.


An HSA is…

A health savings account (HSA) is a tax-advantage account that participants can use to pay for healthcare expenses, save for the future and invest to build savings. HSAs are portable, meaning that they can be taken with employees if they change employers and into retirement where funds may be used for non-qualified medical expenses. Employers can also contribute to their employees’ HSAs.


A 401(k) is…

A 401(k) is a retirement savings plan offered by many employers that have tax advantages. Both the employee and employer can contribute a portion of the employees’ wages to an individual account. These elective salary deferrals are excluded from taxable income, except at retirement.


An IRA is…

An IRA is a long-term savings account that can be used to save for the future and qualifies for certain tax advantages. Participants can choose to invest in a wide range of financial products, including stocks, bonds and mutual funds, to further grow their account. An IRA is primarily designed for self-employed individuals who do not have access to other retirement savings options through an employer.


Why does Investing with an HSA help?

An HSA has comparable, or better, perks than a 401(k) or IRA with respect to healthcare costs in retirement. Similar to a 401(k) and IRA, participants can contribute to an HSA until Medicare coverage begins. Keep in mind funds will be taxed and penalized if they are withdrawn from a 401(k) or IRA before the participant is 59.5 years old.  HSA funds can be withdrawn for qualified health expenses at any time without penalty. HSA funds are available now, transfer from job to job and have no minimum distribution requirements.


HAS vs 401(k) vs IRA Comparison Chart

HSA 401(k) Traditional IRA Roth IRA
Eligibility Must be enrolled in an HSA-eligible health plan Must be employed at a business that offers a 401(k) Must have taxable compensation and be younger than 70.5 Can contribute at any age if you meet certain income requirements
Contribution tax status Tax-deductible Tax-deductible Tax-deductible if you quality (Eligibility is based on your retirement plan at work) Taxable
Distribution tax status Tax-free (if funds are used on qualifying expenses) Taxable Taxable Tax-deductible if the distributions qualify


What are HSA perks versus a 401(k) or IRA?

There are two important distinctions related to healthcare costs when comparing an HSA with a 401(k) and IRA:

1) Contributions and withdrawals

  • With an HSA, contributions made through payroll deductions are tax-free. Withdrawals to purchase eligible medical expenses are also tax-free.
  • With a 401(k), contributions are tax-free, but withdrawals are taxed as any other type of income. Additionally, if funds are withdrawn before turning 59 ½, the funds are subject to a 10 percent early withdrawal penalty.
  • With an IRA, there are tax implications for either contributions or withdrawals (depending on the type of IRA).

2) Surprise healthcare costs

  • HSA participants who use the account for retirement planning can tap into funds at any time should the need arise. They are only subject to withdrawal penalties if the funds are spent on ineligible expenses.
  • With a 401(k) or IRA, withdrawals prior to age 59 ½ are generally subject to be included in the accountholder’s gross income, plus are subject to a 10 percent penalty.


“Healthcare and retirement planning have emerged as top priorities for employers to address with their benefits,” said Matt Dallahan, vice president of product portfolio management at WEX. “One of the perks of an HSA is that it can support both of these vital employee needs.”



The information in this blog post is for educational purposes only. It is not investment, legal or tax advice. For legal or tax advice, you should consult your own counsel. To stay up to date on benefits trends and insights, subscribe to our blog.

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