Can a Health Savings Account (HSA) Be Utilized for Assisted Living Expenses?
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