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ALLY DONNELLY: Thanks for joining Fidelity's HSA Beyond the Basics. I'm Ally Donnelly, host of Fidelity's personal finance podcast Money Unscripted. Our goal today is to help you better understand how HSAs work and why they're often considered a powerful tool for managing both health care expenses and long-term savings.
We'll start with the basics and then explore strategies that can help you make the most of HSAs, tax advantages, whether you're considering opening one or you already contribute to one. Joining us today are Sarah Haflett, a Vice President with our Thought Leadership team, and Amy Richardson, a Vice President on Fidelity's Health and Benefits Team. Sarah, could you share a little bit about what you do here at Fidelity?
SARAH HAFLETT: Sure, Ally. And thanks so much for having me. I have more than 20 years of experience in health care research, strategy, and consulting. And here at Fidelity, my role is in thought leadership. And the goal is really for our team to provide clarity on how health benefits and the health system works. So our team focuses a lot on primary research on macroeconomic trends, consumer experience, everything that's going on in the health system, and health benefits.
ALLY DONNELLY: Terrific. And, Amy, welcome to you.
AMY RICHARDSON: Thanks, Ally. I've been with Fidelity for over 20 years in a variety of roles, primarily related to employee benefits, retirement services, and investment offerings.
ALLY DONNELLY: Before we dig in, I want to say that Fidelity does not give tax or legal advice. And nothing we discuss today should be interpreted as tax or legal advice. The information we provide is going to be general in nature, and it may not apply to your situation.
If you have tax or legal questions about your specific situation, we encourage you to talk with your attorney or a tax professional. If you do have a question about anything we're talking through today, please share it in the chat. We have a team working to get your answers, and we also have additional resources to share. As always, you can visit Fidelity.com/myHSA for more information.
All right, Amy. Let's start with the basics. What is an HSA?
AMY RICHARDSON: A Health Savings Account-- or HSA-- is a tax-advantaged account that can be used to save and pay for qualified medical expenses. An HSA has three tax advantages-- the contributions, the earnings, and withdrawing funds for eligible expenses. An HSA is really more than just health savings, depending upon your needs. An HSA can be a powerful retirement tool, and it is savings for qualified medical expenses and an extra nest egg.
ALLY DONNELLY: Yeah, Sarah, how do people tailor the way they use an HSA for different financial needs or priorities or individual goals and life stages?
SARAH HAFLETT: Well, I always like to say that the HSA is a multitool for qualified medical expenses, and people generally use the HSA in three different ways. And I'm going to talk about two of them. So one of the ways is for spending. Some people simply wish to use their pretax income to pay for current qualified health expenses, so today's expenses.
And then others prefer to save and treat their HSA like an emergency savings account for unexpected health care costs. Our research actually has found that consumers with an HSA are significantly more likely to say that they are prepared to cover an unexpected health expense than those without one.
ALLY DONNELLY: Great. Amy, Sarah covered two of the ways. What's the third way people might use an HSA?
AMY RICHARDSON: To invest. So still others view the HSA as a tax-advantaged investment vehicle for building long-term savings. In fact, 80% of employees who invest all or part of their HSA funds reported that doing so makes them feel more prepared for retirement.
ALLY DONNELLY: Sarah described HSAs as a multitool for health expenses. How can that flexibility benefit people?
AMY RICHARDSON: Yeah, all the ways of using the HSA mentioned are valid and valuable strategies for allocating and deploying the HSA funds. And they aren't mutually exclusive. Because the HSA can be a multifunctional spending, saving, and investing vehicle, it can adapt to each individual's specific needs. There's no one-size-fits-all strategy. And instead, the optical mix of spending and saving and investing for any given individual depends on their personal needs, their health status, financial situation, their risk tolerance, and their timeline. What's more, an individual's optimal HSA strategy may change as their circumstances and their goals change.
ALLY DONNELLY: That's a great level set. Sarah, let's get into a bit of the nitty gritty. For people who might be new to HSAs, how do they get started?
SARAH HAFLETT: So an HSA is designed to work alongside a high-deductible health plan. You might have also heard that called an HSA-eligible health plan. So typically, you first enroll in an HSA-eligible health plan and then open an HSA to start saving for qualified health care expenses.
ALLY DONNELLY: All right, Amy, who's eligible to open an HSA?
AMY RICHARDSON: So you can open an HSA and contribute if you're enrolled in an HSA-eligible health plan whether your employer offers an HSA or not. Of course, there are some exceptions-- for example, if you're receiving Medicare benefits, which we'll be talking about later. I'll share that there are zero account fees and zero account minimums for Fidelity HSAs offered through Fidelity.com to individuals.
ALLY DONNELLY: Amy, as I look at my insurance and I'm not sure, explain what a high-deductible health plan is.
AMY RICHARDSON: Sure. So HSA-eligible health plans are high-deductible health plans. And that term can sound intimidating, but it's important that we look at the full picture. So similar to how car insurance works, when you choose a higher deductible, it typically means that you're paying a lower premium. And that's a lower premium than you would pay with a traditional PPO plan. And that's how much you'll have to pay for covered services beyond your premiums, before your insurer starts kicking in their share.
That often makes an HSA-eligible health plan one of the more budget-friendly health plan options. Many people use the money that they save from their lower premiums to contribute to an HSA, and then those contributions are tax advantaged and can be used to help pay for qualified medical expenses. And any unused HSA funds roll over from year to year, allowing you to build up savings over time for qualified medical expenses whenever they come up.
ALLY DONNELLY: All right, let's talk about deductibles. How much are the deductibles for an HSA-eligible plan?
SARAH HAFLETT: Well, in 2026, the minimum deductible for an HSA-eligible health plan is $1,700 for an individual plan and $3,400 for family coverage. But some plans have even higher deductibles. When we looked at 2027, these minimum deductibles rise to $1,750 for an individual plan and $3,500 for a family plan. One call out I'll make is that approximately 50% of those in HSA-eligible health plans do not have an HSA. So I would encourage everyone to review your current health plan to see if it's an HSA-eligible health plan.
ALLY DONNELLY: OK. Amy, what happens if you have an HSA but then you're no longer enrolled in an HSA-eligible health plan?
AMY RICHARDSON: The HSA is still your account to spend from, to use for qualified medical expenses or in retirement. It's your money forever.
ALLY DONNELLY: But you can't contribute to it.
AMY RICHARDSON: When you're not enrolled in a high-deductible health plan, that is correct.
ALLY DONNELLY: Right. OK. When you sign up for an HSA, when can you do it?
AMY RICHARDSON: So the open enrollment season, which is typically October through December, is a great time to review your benefits and see what options are available to you. So open enrollment is when you can sign up for an HSA-eligible plan and then choose your HSA for that following benefits year. And if you're currently enrolled in an HSA-eligible health plan, you can open an HSA at any time.
ALLY DONNELLY: OK. Sarah, how much can you contribute to an HSA each year?
SARAH HAFLETT: Well, in 2026, the contribution limit is $4,400 for individual coverage and $8,750 for family coverage. In 2027, fortunately, these contribution limits have been raised to $4,500 for individual coverage and $9,000 for family coverage. Employers can contribute to your HSA, but the contribution limit remains the same.
So for example, if your employer deposits $1,000 into your HSA, you can contribute $3,400 in 2026 if you're on an individual plan and $7,750 if you are on a family plan.
ALLY DONNELLY: OK. Are there any opportunities for catch-up contributions if you're older?
SARAH HAFLETT: There are. Fortunately, there are. So starting at age 55, you can contribute an extra $1,000 per year to your HSA. So if both you and your spouse are 55 or older, not enrolled in Medicare, as Amy mentioned earlier, and otherwise eligible, you can each make a catch-up contribution. The catch-up contributions must go into your own separate HSA. If the contribution isn't made through payroll, you may be able to claim it as a tax deduction when you file your taxes.
ALLY DONNELLY: OK. With the money you contribute to an HSA, do you have to spend or use it within that year?
SARAH HAFLETT: No. With HSAs, the money is yours. So you can use it across jobs, across health plans, and into retirement. And the funds roll over every year. You also can have more than one HSA, which I think we'll talk about a little bit later.
ALLY DONNELLY: All right. Terrific. Amy, help us understand the difference, because I know this comes up a lot for you, between an FSA and an HSA.
AMY RICHARDSON: Definitely. So people often confuse FSAs-- Flexible Spending Accounts-- with HSAs. FSAs are often associated with spending, while HSAs are often associated with savings. So FSA stands for Flexible Spending Accounts, and it's designed to be spent during that plan year.
FSAs do reduce your taxable income, but they do not grow in balance. And they cannot be invested. And typically, they must be spent on eligible expenses in the plan year in which you contributed, whereas an HSA is a health savings account and not just for current and future qualified medical expenses or expenses for this year only. So an HSA is not a use it or lose it like an FSA. With an HSA, you can keep and invest the money. So it can stay in that account for years through retirement.
ALLY DONNELLY: Amy, I want to get into the triple tax advantages of an HSA. And I know this is one of your favorite parts.
AMY RICHARDSON: It really is. So with the tax savings, I like to say tax free times three, as there are three forms of tax savings. There's the contributions. So first, your money goes in tax free. So the amount you contribute to your HSA reduces your taxable income.
Then there are the earnings. The money in the account grows tax free. So any interest or investment earnings are not taxed. And then you can withdraw it tax free for qualified medical expenses. And then the money that you take out to spend on qualified medical expenses is also tax free with respect to federal taxation only. State taxation may or may not apply. HSAs can provide more tax advantages than retirement accounts, such as 401(k)s or IRAs.
ALLY DONNELLY: We touched on employer contributions, but help us understand how contributions to an HSA works through your employer.
AMY RICHARDSON: Sure. So with an HSA, you can contribute your pretax dollars from your paycheck automatically. And your employer might make contributions on your behalf as well. The contributions aren't taxable to you. If you don't have an HSA through your employer, your contributions are tax deductible when you file your returns.
If you paid for a medical expense out of pocket while you had your HSA, you can reimburse yourself using funds from that HSA at any time. There's no deadline or time limit to do so. So therefore, you want to keep those receipts for tax purposes and remember to track how much you can reimburse yourself tax free in the future. If you have a Fidelity HSA, you can even store those receipts in our Fidelity Health App or on Fidelity.com.
ALLY DONNELLY: OK. So how could contributions change when you contribute to a nonworkplace HSA?
AMY RICHARDSON: Yeah. So most workplace HSAs are pretax. And when you contribute to an HSA that you've set up separate from your employer-- say a brokerage HSA-- they are most likely to be tax deductible, which can lower your taxable income.
ALLY DONNELLY: OK. How should people prioritize different retirement savings options? And where does an HSA fit in?
AMY RICHARDSON: Yeah, that's a great question. So a good starting point is deciding where your savings dollars should go by first covering your near-term essential expenses and then maximize the opportunities that support long-term financial security. So every situation may be different, and every person has different financial goals.
But when it comes to prioritization, you want to make sure you're setting aside enough money in your HSA to cover your expected health care expenses for the year, as you are using your pretax dollars. And then funding your expected health care medical expenses first can prevent having to tap emergency savings or take on debt later. And often, this can be the simplest approach or strategy.
ALLY DONNELLY: Amy, what should you focus on once you've covered your expected health care expenses?
SARAH HAFLETT: Well, from there, you can focus on other goals, like building an emergency savings account, taking advantage of saving for retirement by getting your full eligible workplace match in a workplace retirement savings account, and/or saving for other future needs. And an HSA can play an important role helping you address your current health care costs while also serving as a valuable retirement savings vehicle over time.
ALLY DONNELLY: OK. Sarah, let me bring you back into the conversation. Does some people have a strategy with their spending or not spending their HSA funds?
SARAH HAFLETT: They do, Ally. So some people use their funds in real time. So they're using it for things like prescription drugs, their deductibles, or maybe their copays. Meanwhile, there are others who may be thinking of saving a lot or all of their HSA dollars to use later.
Maybe you find that your child is going to need braces in a few years, or maybe you know you're going to be having a medical procedure or surgery and you want to make sure you have the funds to cover those expenses.
ALLY DONNELLY: All right. Well, then how much cash should you keep in your HSA if you want to use it for spending on today's health care expenses?
SARAH HAFLETT: It's a great question. And we get this question a lot because often, health care expenses are difficult to budget for. So two ways to think about how much cash you need to budget for and keep in your HSA to cover known medical expenses-- first, individuals can take a look at what they spent on health care last year and then make some adjustments to the amounts based on what health services they think they might need in the coming year for themselves or their family. Or they can also budget based on their health plan deductible or their out-of-pocket maximum.
ALLY DONNELLY: OK. Amy, are there any tools that can help you estimate costs?
AMY RICHARDSON: Sure. Yeah, some employers provide decision support tools, including those that rely on historical claims to estimate future health care utilization and costs. And those tools can help employees feel more confident about how much to contribute to their HSA.
ALLY DONNELLY: All right, great. So if someone decides to contribute money to their HSA, what do they need to know to help manage the spending and investing?
AMY RICHARDSON: Well, if you don't have to spend some or all of the funds, you can take advantage of investing. If you want your HSA to work as hard as it can for you, make sure you're using it both from a savings and investing standpoint.
ALLY DONNELLY: Let's talk a little bit more deeply about investing. What do you want viewers to know about investing the funds in an HSA?
AMY RICHARDSON: Well, when and how to start investing funds in an HSA is really based on your personal needs. The strategy and how much you can invest is flexible, and that can change. So to help your funds take advantage of the tax-free growth potential, you may consider investing your HSA dollars.
ALLY DONNELLY: OK. So once I've contributed to my HSA, do I need to do anything? Or is the money automatically invested?
AMY RICHARDSON: So yeah, that can be a common misconception, as you do have to choose your investment strategy. Investing the funds in your HSA is truly a personal choice, so it's not done automatically. You can, however, set up recurring investments with a Fidelity HSA.
ALLY DONNELLY: All right. So what are some ways to get started investing?
AMY RICHARDSON: Well, there's different options on how to invest the funds in your HSA. And Fidelity can help you. So you can choose how to invest. However, once you make that choice, you can then choose to have it automatically invested into those choices when it arrives in your account.
Different HSA providers will have different investment options and guidelines and even thresholds. At Fidelity, you can choose and manage your own investments, or you can simply choose investments from our preselected Fidelity HSA funds to consider. You can also opt to use Fidelity's robo advisor, known as Fidelity Go, which chooses and manage your investments based on your long-term goals and your risk tolerance, keeping your strategy on track. And you can even choose a single fund strategy, including a target date fund or a health savings funds.
ALLY DONNELLY: Sarah, what can I actually use my HSA money for? What expenses are eligible?
SARAH HAFLETT: Yeah, Ally, so I always encourage people to go to the IRS website to see what is actually covered and what that list is. And it changes from time to time. But an HSA can be used to pay for things like copays or prescription drugs. It could be used to pay for physical therapy, dental care, contacts and glasses, even some family planning services and things like direct primary care or functional lab tests.
Also, it can be used to pay for certain insurance premiums depending on your situation. For example, some COBRA premiums, some Medicare premiums, unemployment benefits, and long-term care premiums can be paid within HSA. You can even pay for qualified medical expenses for your spouse or your dependents even if they are not on your insurance plan.
ALLY DONNELLY: Oh, even if they're not on your insurance plan. I didn't know that. OK, so what expenses are not eligible for an HSA?
SARAH HAFLETT: Sure. So anything that is cosmetic in nature, anything that is really focused on general fitness, personal hygiene, some vitamins and supplements, those would not be expenses that are eligible to use an HSA for. But be sure to check out those resources on the IRS site to learn more about what is eligible and what is not.
ALLY DONNELLY: OK. Amy, how do you manage the process when it comes to paying out of pocket now and reimbursing yourself later?
AMY RICHARDSON: Yeah, so there are some ways to maximize your HSA and take advantage of all three of those tax advantages. If you pay out of pocket today, you'll want to save your receipts to reimburse yourself later. And you can do that on the Fidelity Health App and also on Fidelity.com. By doing this, it offers the opportunity for tax-free growth potential and also for flexible future withdrawals.
ALLY DONNELLY: Amy, anytime I talk to people about HSAs, they undoubtedly say, I didn't know an HSA could be used for that. So give us some of the a-ha moments you've had with folks over the years.
AMY RICHARDSON: Sure. So here's one a-ha moment. After age 65, you can use your HSA for anything.
ALLY DONNELLY: Define anything.
AMY RICHARDSON: I mean anything. After 65, your HSA basically becomes another retirement account. You can use the funds for anything without penalty-- for example, a vacation. If it's not for qualified medical expenses, the withdrawal will be taxed as ordinary income.
You can also review items that you paid for in the past that would have counted as an eligible expense. So as long as you had an HSA at that time, you can go back and reimburse yourself. There may be some things that surprise you as being eligible expenses, like some insurance premiums.
ALLY DONNELLY: Oh, those are great a-ha moments. Any more?
AMY RICHARDSON: As a young adult, you can super save. So anyone can contribute to someone else's HSA.
ALLY DONNELLY: Super save as a young adult? You mean contribute to someone else's HSA? These are new for me. Tell me more about them.
AMY RICHARDSON: Sure. So as a young adult, if you're under age 26 and you're still on your parents' health plan and you're not claimed as a tax dependent, you can take advantage of the family contribution amount that an HSA offers, even if you are single. So just bringing back the numbers-- for 2026, the individual coverage contribution limit is $4,400, while that family coverage contribution limit is $8,750.
ALLY DONNELLY: All right, that's great. But I can imagine it might be hard for a young person to maximize the family contribution amount.
AMY RICHARDSON: Absolutely. It's likely that someone under age 26 may not have the extra money in their budget to take full advantage of contributing to an HSA and, in this case, the $8,750. So someone else-- for example, their parent-- could contribute to another person's HSA. That's not age dependent. And this can be another way to get started early on saving and investing for your future, in addition to building an emergency savings account.
ALLY DONNELLY: Yeah. Any other strategies to talk through when it comes to HSAs?
AMY RICHARDSON: Yeah. So some people maintain multiple HSAs. Some use one for their savings and another for investing. Others like to take advantage of employer contributions in one and then transfer it to a different provider. And other people may use their HSA strictly as another retirement account-- max it out, save, invest, and don't touch.
ALLY DONNELLY: All right. To that end, would you ever want just one HSA?
AMY RICHARDSON: If you have multiple health savings accounts-- so the HSAs-- it can make sense to consolidate them with one provider because consolidation can help save money on fees and also make it easier to manage. If you look to transfer or consolidate your HSAs with Fidelity, doing so may help lower fees and also simplify management.
ALLY DONNELLY: OK. Who can benefit from an HSA? And how do eligibility requirements factor in?
AMY RICHARDSON: An HSA can be a valuable tool for many people, but eligibility to contribute depends on your individual circumstances. So to make contributions, you must be enrolled in an HSA-eligible health plan and meet other IRS eligibility requirements. Even if you're not currently eligible to contribute, you may still have an existing HSA and be able to use those funds for qualified medical expenses.
And what's most important is understanding where you are in your financial and your health care journey because HSAs can support different needs and goals at different life stages, whether you're focused on covering current health care costs, preparing for unexpected expenses, or building savings for the future.
ALLY DONNELLY: Yeah. One thing we know is health care expenses are lifelong and extend across life stages, and they can be one of your biggest expenses in retirement. Fidelity released the annual Retiree Health Care Cost estimator in July 2026. The average retiree can expect to spend $185,500 or $371,000 for a couple on health care and medical expenses during retirement. And that's beyond the cost Medicare covers. So, Amy, how can an HSA help manage paying for these expenses?
AMY RICHARDSON: Yeah. So, Ally, these numbers are up 7.5% from just a year ago. And I'll add that 54% of preretirees incorrectly believe that Medicare will cover all of their health care expenses in retirement. For many, health care is likely to be among their largest expenses. So fortunately, individuals who have access to an HSA-eligible health plan through their employer may have the option of saving and investing in an HSA to help pay for current or future qualified medical expenses.
ALLY DONNELLY: I'd love to hear how people could use their HSA at different life stages.
AMY RICHARDSON: Sure. So I'm going to organize these life stages into some categories so we can discuss how an HSA can be used. So let's think about early career, which would be ages 22 to 35, midcareer-- ages 36 to 55-- and then looking ahead to retirement, so over age 55. But first, I'd love to share some research with you.
People's reasons for investing or not investing the funds within an HSA are influenced by life situations, stages, and experience. For example, our research has found that younger HSA holders-- those in that 18-to-35 range-- were more likely to be investors than account holders from older age groups regardless of their financial well-being, and they're more likely to fully invest their HSA contributions. They were also more likely to view HSAs as a powerful retirement investing tool. And between men and women reporting similar financial well-being, men were much more likely to have invested the funds in their HSAs.
ALLY DONNELLY: Amy, with that early career stage, some young adults may still be on their parents' health insurance. Others might have their own health insurance plan. So what's the difference in how those two groups could use an HSA?
AMY RICHARDSON: So as we talked about before, there may be lower expenses, which provides a growth opportunity. You can think of it as another investment account and emergency medical savings account. So if you're covered by an HSA-eligible health plan, you can open and contribute to an HSA.
Starting early, even if you start small, can make a big difference down the road. At this point, too, don't be afraid to use your HSA. That's what it's there for. But know that since the account is yours forever, whatever you don't use now has the potential to grow over time. And even if you're still on your parents' health insurance but not claimed as a dependent on someone else's tax return, you may be eligible to open an HSA and contribute double the contribution limit until age 26.
ALLY DONNELLY: OK. What about those in that midcareer stage?
SARAH HAFLETT: Yeah. So this is, again, those that are kind of ages 36 to 55, those in their midcareer. Really, during this stage, with an HSA, many people are balancing. They're in a balancing stage of life. They're balancing their spending, their saving, their investing in the HSA, whether they are single or have a family.
At this stage of their career, they're more likely to have some medical expenses. And as we've discussed, HSAs can help you pay for a lot, from routine care to even specialty services. And as Amy mentioned previously, Fidelity has a receipt storage feature in the app, making it easy to submit to the IRS come tax time.
But many people in this midcareer life stage are still relatively healthy, but they want to make sure they have a cushion in case of an unexpected health event affecting either themselves or someone in their family. So HSAs can really be their emergency medical savings in this regard.
ALLY DONNELLY: OK. Thank you. Amy, how can people approaching retirement think about an HSA?
AMY RICHARDSON: So an HSA can be a stealth way to save for retirement. After age 65, HSA funds can be withdrawn and used for nonmedical expenses without a penalty, though those withdrawals would be taxed as income. And that flexibility allows an HSA to function similarly to a traditional IRA while still offering tax-free withdrawals for qualified health care expenses at any age.
And as you approach retirement, you can use your HSA for catch-up contributions and planning for health care in retirement. It's never too late to start because every little bit of tax-deferred money can help you in retirement.
ALLY DONNELLY: Amy, how might you consider people to approach HSAs with a different mindset when it comes to health care?
AMY RICHARDSON: Yeah, many people view investing in an HSA as less important than investing in a 401(k), even though the HSA may have a leg up on the tax benefits. So think about health care. You're likely to face many health care expenses in your future-- medical procedures, hospital bills, prescription drugs, maybe even home health care or nursing home expenses.
No one knows when these expenses will hit or how much you may have to pay. So since you will likely have to pay for large-scale health expenses sometime later in life, building a nest egg specifically designed to help cover future health care costs is a prudent move. Planning unlocks the opportunity to build a retirement income plan that supports the lifestyle one envisions, and HSAs are a good way to help put that plan into action.
ALLY DONNELLY: If someone hasn't opened and contributed to an HSA yet, is it too late?
AMY RICHARDSON: No, it's not too late as long as you're still eligible to contribute. So I'll share an example with you. Let's say that you haven't yet opened an HSA, and you decide to do so at age 55. If you maximize 2026 HSA contributions starting at age 55, you could have over $80,000 at age 65.
This could be done through maximizing your contributions and taking advantage of the $1,000 catch-up contributions. So, Ally, the answer is no. It's not too late, provided that you start contributing before Medicare.
ALLY DONNELLY: Well, let's talk about Medicare. Sarah, how could an HSA help with the Medicare gap?
SARAH HAFLETT: Yes, Ally. And this is something that people are very focused on as they are nearing retirement, is that Medicare gap, so that time period between when you have retired but you're not eligible for Medicare because you have not reached the age of 65. And those individuals need health care coverage before enrolling in Medicare, before they're eligible.
So you may be able to use your HSA to pay for insurance premiums, but the situations in which you can do so are actually pretty limited. For example, you can use HSA funds for health coverage purchased through an employer-sponsored plan under COBRA. Or you can use your HSA to pay health insurance premiums while receiving unemployment compensation. But other than these situations, you will not be able to pay for health insurance premiums from your HSA before the age of 65.
ALLY DONNELLY: Once you're enrolled in Medicare, can you still contribute to an HSA?
SARAH HAFLETT: No. When you enroll in any form of Medicare, neither you nor your employer should continue contributing to your HSA. And this is pretty important to understand because there are implications when you enroll in Medicare, implications for your HSA contributions. So you could actually be subject to tax penalties if you make HSA contributions after you enroll in Medicare or when your Medicare coverage begins.
So if you enroll in Medicare Part A after turning age 65, you and your employer will actually need to end your HSA contributions during any retroactive Medicare coverage period. And that can actually be up to six months. So the bottom line is, it just comes down to planning and timing.
And I know this is a lot. We get a lot of questions about Medicare. But we do have a service here at Fidelity called Fidelity Medicare Services. And these folks can provide impartial Medicare guidance to help you compare your options.
ALLY DONNELLY: And it's free. So, Sarah, how can you use your HSA when you're on Medicare?
SARAH HAFLETT: Yeah. So you can use your HSA to pay certain Medicare expenses, including premiums for Part A, Part B, Part C, which is also known as Medicare Advantage, and Part D, prescription drug coverage. Medicare, as we spoke about earlier, does not pay for everything. And that is a common misconception that it does.
So you can use your HSA to pay for deductibles and copayments and the coinsurance that Medicare is not going to cover. But you cannot use your HSA to pay premiums for a Medicare supplemental insurance plan. So we talked about traditional Medicare. This is the Medigap.
So that Medicare supplemental insurance plan, you cannot use your HSA funds to pay for those premiums. I'll also just note quickly that retirees over the age of 65 who delayed Medicare and continued their employer-sponsored health coverage can actually use their HSA to pay their share of those costs as well.
ALLY DONNELLY: Long-term care can be a very big expense for people-- and the insurance to cover it. So how can you use your HSA funds to pay for long-term care insurance?
SARAH HAFLETT: Well, you can use your HSA funds now to pay tax-qualified, long-term care insurance premiums, though there are some annual limits that apply, and they're based on age. Once you are actually using long-term care, though, you can no longer contribute to an HSA. Planning for long-term care can be really challenging to navigate, but Fidelity can help you plan for long-term care as well.
ALLY DONNELLY: OK, that's good to know. Amy, the key theme seems to be planning, even advanced planning, with HSAs.
AMY RICHARDSON: Yes. There are some things to consider. So we've talked about consolidating HSAs to keep them all in one place. It can be very easy to transfer your HSA from one provider to another through a transfer of assets or an HSA rollover.
Since HSAs have the key trait of portability, as well as being yours to keep, you can bring all your HSAs together without any federal tax implications if you transfer directly from one provider to another. This can allow you to take advantage of an HSA such as Fidelity's with no fees, no minimums to invest, and the option to set up recurring investments and access to a full spectrum of investment options, including stocks, bonds, ETFs, and mutual funds.
ALLY DONNELLY: All right. What else should you consider?
AMY RICHARDSON: Well, you can use your health savings account, your HSA money to pay for Qualified Medical Expenses-- also called QMEs-- for your spouse and dependent children as long as everyone meets eligibility requirements and you, the account owner, have authorized each of them by requesting an additional Fidelity HSA debit card or Fidelity Health and Benefits card in their name.
And as Sarah mentioned earlier, you can spend your HSA dollars on qualified medical expenses for you, your spouse, and anyone you can claim as a tax dependent even if they are not on your health insurance. You should keep copies of your receipts for qualified medical expenses in case there is ever an IRS audit. And it's important to use your HSA to pay for qualified medical expenses for yourself or an eligible dependent only, as misusing your HSA makes it subject to not just ordinary income tax, but also a 20% IRS penalty if you're not yet age 65.
ALLY DONNELLY: That's good information to know. Sarah, what happens to an HSA when someone passes away?
SARAH HAFLETT: Ally, I'm really glad you asked this because it's obviously not a favorite scenario to discuss, but it's one that needs to be planned for. The beneficiary designation for HSAs matters more than many people realize. If a spouse is the beneficiary of your HSA, it will be treated as your spouse's HSA with those same tax benefits.
But if a nonspouse is the beneficiary, then the account stops being an HSA. And the fair market value of the HSA becomes taxable to the beneficiary in the year of death. So you'll want to think about your HSA in the context of your retirement income strategy.
ALLY DONNELLY: And make sure you've named beneficiaries. Amy, how can HSAs be flexible?
AMY RICHARDSON: Well, an HSA should be considered as a multitool that works with you throughout your life. So you have the flexibility to use the money in your HSA now for things that come up, but then your HSA is also designed to let you set that money aside to grow and to cover expenses in the future, including during retirement. You aren't locked into an HSA strategy.
What works for you today, that could change, just as your life changes. So HSAs are very dynamic. Life happens. And just as plans change, so can your health plan and your HSA contribution eligibility. But that HSA is always yours.
ALLY DONNELLY: Great information. Talk to me about maximizing your HSA.
AMY RICHARDSON: So a key part of maximizing your HSA is making sure that as much of your money stays working for you as possible. And that starts with choosing the right HSA provider because not all providers are equal. So here are a few things to look at when you're comparing providers.
Account fees. So some providers charge monthly or annual account fees or charge for specific account features-- for example, additional debit cards or check writing. Fidelity does not charge for those types of account fees. Investment options. Do they offer a wide range of choices that fit your needs?
And then investment minimums. Can you start investing right away? Or do you need to reach a certain balance first? So with Fidelity, if you're choosing your own investments, you can invest the first dollar you put in the account. And if you're using Fidelity Go, you can invest with as little as $10. And also, taking a look at the rate of return on cash. What interest are you earning on the money that's not invested?
ALLY DONNELLY: This has been a great conversation. Amy, Sarah, thank you so much. Whether you're just getting started with an HSA or looking to make the most of the one you already have, Fidelity is here to support you every step of the way.
We've linked valuable resources to help you learn more, evaluate your options, and make confident decisions about your health care and savings strategy. Thanks for spending time with us. We hope you found this session helpful. Take care.