Health Savings Accounts (HSAs) came into existence in December 2003 as part of the Medicare Prescription Drug, Improvement, and Modernization Act. Sometimes dubbed the “healthcare IRA,” HSAs allow Feds to set aside pre-tax money to cover co-pays, deductibles, and other qualified out-of-pocket healthcare costs.
As a Fed, you could also use the HSA and its triple tax-advantaged benefits as an additional monetary cushion when you retire from your career. However, it’s essential to understand the requirements and potential drawbacks before jumping into such a strategy.
The HSA Basics
You don’t just go and sign up for an HSA. Rather, you must first enroll in a High-Deductible Health Plan (HDHP) offered through your Federal Employees Health Benefits (FEHB) Program.
When you sign on, you’ll be asked questions to determine your HSA eligibility. You’re eligible if you:
- Have no other disqualifying health coverage (such as a traditional PPO or HMO)
- Are not enrolled in Medicare or Tricare
- Are not claimed as a dependent on someone else’s tax return
- Don’t have a general-purpose Health Flexible Spending Account (FSA), though it’s possible to coordinate your HSA with a limited-purpose FSA (used for dental or vision)
Once you are signed up, the FEHB contributes a portion of your HDHP premium into your HSA each month. You can also contribute additional funds, up to the IRS maximum amount.
HSA Retirement Benefits
As mentioned above, HSAs provide triple-tax advantages, such as:
- Pre-tax contributions
- Tax-free interest
- Tax-free withdrawals, as long as the money is used for qualified medical expenses
Another piece of good news is that the money in your HSA doesn’t go away when the year ends. All unused funds and interest carry over each year.
The HSA is yours to keep, even when you separate from service or change jobs. You can continue contributing to the account (as long as you remain on the qualifying HDHP) and reinvest those funds to help grow your money. And, unlike a traditional IRA, there is no required minimum distribution to worry about.
Finally, you can reimburse yourself for medical expenses incurred after your HSA goes live, even if those expenses were generated in previous years.
Here are a few ways to grow your HSA while still employed.
- Pay for out-of-pocket medical expenses yourself, rather than withdrawing from the HSA
- Maximize your contributions—in 2026, you’re allowed to allocatea total of $4,400 (individual) or $8,750 (family) to the account
- If you’re 55 or older, allocate an additional $1,000 to the account in “catch-up” contributions
Learn more about your retirement benefits at our No-Cost webinars, featuring Ed Zurndorfer -
HSA Downsides
One important consideration is that enrollment in a qualified HDHP is a path to the HSA. As suggested by the name, these healthcare plans have high deductibles and out-of-pocket expenses.
In 2026, the annual deductible minimum is $1,700 (self-coverage) or $3,400 (family coverage). Meanwhile, out-of-pocket expenses are capped at $8,500 for self-coverage and $17,000 for family coverage.
This means you would be paying a minimum of $10,200 from your bank account until the HDPH starts covering health expenses.
Here are other potential issues for consideration:
- Contributions must stop when you join Medicare (though you can pay for Medicare premiums from the account)
- Allocating funds to the account above the IRS limits could generate a 6% tax
- You must keep your receipts to be reimbursed for medical expenses
HSA for Post Retirement
Setting up an FEHB HDHP and opening an HSA helps increase your retirement resources. Tax-free earnings and withdrawals combined with earnings and growth can help you with medical expenses after you separate from federal service.
However, be sure you understand the positives and potential pitfalls of an HSA. For additional guidance on whether an HSA would work with your post-retirement investment strategy, reach out to the expert team at Serving Those Who Serve. Here, you’ll find Fed-focused CERTIFIED FINANCIAL PLANNERS® that can advise you on the best steps to take to get the most from your government benefits.
To learn more and to set up a no-obligation appointment, visit the website or email [email protected].
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
TSP: The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you're eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.
IRAs: Contributions to a traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.
Roth IRA: Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.
Roth Conversions: Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.
