Mark Kohler explains how HSAs work as retirement accounts. Contributions grow tax-free and withdrawals for medical expenses are tax-free. At 59½ you can withdraw anything penalty-free, though non-medical withdrawals are taxed. If you die, a spouse inherits it as an HSA, but non-spouse heirs get it taxed like an IRA.
Chapters
What happens to your HSA when you die? Well, let's talk about what happens with your HSA as you live too. So you start your HSA and you start putting money in, and then next year you put in a little more, and then 3 years from now you even put more in, and then you put a little more in. Meanwhile, it's investing and growing and your money's going. And then, oh, I have some medical, I take it out. Oh, at age 59 and a half, once I turn 59 and a half, I can take it out for even non-medical expenses. So this is all for medical. I have to take it out tax-free for medical expenses. If I take it out for anything other than medical, it's a penalty and I pay tax. We don't want to do that. Leave it alone. Just use it for medical. But once I turn 59 and a half, I can use it for non-medical and medical. I can use it for both. So I can do either or. And this is still taxed, but there's no penalty. It's just like a regular IRA. Then let's say I'm 80 years old, I've lived a wonderful life, and I die. Okay. Now it turns into an HSA for my spouse. They get to keep it if I'm married when I die, or it turns into an IRA for my kids, and they get to use it like a retirement account. People, the money stays with you. The government doesn't get it, and it stays tax preferred for your spouse or your kids down the road. It's amazing.
