Author: Ashley Schefer
Reviewed By: Kristi Bickmann

A Health Savings Account (HSA) can be utilized for assisted living expenses. By the end of 2022, an estimated 72 million Americans had an HSA, 42.6% of whom were adults aged 55 and older. But, even with so many older adults holding HSAs, they’re a source of financing that many are unaware could help pay for residential care or cover the premiums for long-term care insurance. With assisted living costing an average of $54,000 per year, HSAs are an important asset that seniors need to utilize to cover costs.

What is a Health Savings Account?

A Health Savings Account is a personal savings account that lets people put money aside to pay for future medical expenses. Holders make pretax deposits, and any interest earned on the account is also tax-free. The IRS places limits on the amount account holders can deposit each year. For 2024, the limits are $4,150 for individual coverage and $8,300 for family coverage. Adults aged 55 and older can make an additional catch-up contribution of $1,000.

How a HSA can cover assisted living expenses

Account holders can withdraw funds at any time to pay for any of the following medical expenses specified by the IRS:

  • Dental and vision
  • Prescriptions
  • Home care services
  • Home improvements
  • Diagnostic devices
  • Skilled nursing care
  • Insurance premiums
  • Health care coverage for seniors aged 65 and older, including Medicare

In addition, an HSA could cover some assisted living expenses if a doctor provides a letter of medical necessity and verifies a senior’s need for long-term care. When retirees have no medical need, an HSA won’t directly pay for assisted living services. However, seniors can use funds to pay long-term care insurance premiums.

Using a Heath Savings Account for dependents

In certain circumstances, account holders can use their own HSA to pay an elderly relative’s assisted living expenses. If you care for a parent, in-law, grandparent, uncle or aunt, they may qualify as a tax dependent, allowing you to cover their medical costs.

It’s also possible to release funds on behalf of a family member who holds an HSA to pay for long-term care if you are:

  • A spouse and listed as an authorized beneficiary
  • A child with a durable power of attorney