HSAs: An overlooked retirement savings vehicle

When it comes to big expenses in retirement, there’s the fun stuff: membership in a golf club, bucket-list vacations and spoiling your grandchildren. But for many retirees, the single biggest expense is less exciting to plan for: health care costs.

An average retired couple, both age 65, may need approximately $345,000 in after-tax savings to cover health care expenses in retirement.¹ As people live longer, it’s understandable to be concerned about the rising cost of health care. Planning ahead for such expenses can help protect your financial security throughout your golden years. 

For many, that upfront planning includes the use of a health savings account (HSA), an often misunderstood savings vehicle offered in certain employer-sponsored health insurance plans.

HSAs can be an effective way to save, but they can also be confusing, and even savers who use an HSA may not be getting all their potential benefits. Here’s what you need to know:

HSAs offer a triple tax advantage:

1. Contributions to HSAs are tax-free. If you make contributions through payroll deductions, they are also not subject to Social Security or Medicare taxes.
2. You can invest that money and enjoy tax-free growth potential.
3. Withdrawals for qualified health expenses don’t incur taxes.

Under IRS rules, you can open and contribute to an HSA only if you are enrolled in a high-deductible health plan. These plans tend to have relatively low premiums and higher out-of-pocket expenses, which funds saved in your HSA are meant to help offset.

If you’re already maxing out your 401(k) contributions, your HSA can serve as another place for you to save for retirement.

Unlike money in a flexible spending account (FSA), HSA funds remain in your account from year-to-year if you don’t spend them, even if you leave your job or switch health plans. That means any investment earnings in your HSA have the potential to grow for decades, effectively creating an extra tax-advantaged fund for retirement fund — in addition to your 401(k) and any IRAs — that you can earmark for health care expenses later in life.

If you switch from a high deductible health plan to another type of health plan, you will not be able to contribute further to the HSA until you are once again covered by a high-deductible health plan. You can, however, still use it to pay for qualified expenses.

For tax year 2025, you can contribute up to $4,300 to an HSA account individually — up to $8,550 for families. In 2026, that number goes up to $4,400 for individuals and $8,750 for families. If you are age 55 or older, you can save an additional $1,000 per year in “catch-up contributions” to your HSA.² The deadline to make HSA contributions for the 2025 tax year is April 15, 2026.

You may also get some help from your employer in the form of a match contribution, similar to 401(k)s.³

While you aren’t allowed to contribute to an HSA once you’ve enrolled in Medicare, these accounts offer new benefits in retirement. In addition to using your HSA for qualified medical expenses, after age 65 you can use it for non-medical expenses without penalty, though you’ll have to pay taxes on those withdrawals.^4,5 And, unlike 401(k) plans and traditional IRAs, HSAs don’t have required minimum distributions, so you can keep your money in the HSA until you’re ready to use it. 

Thinking about a comprehensive approach to saving for retirement, an HSA can be one vehicle to park your investments and let them grow over time. Most HSA providers allow account holders to invest their holdings once they reach a certain balance. Just as you have a limited set of investment options to choose from in most 401(k)s, your HSA provider typically offers a predetermined list of investments.

If you aren’t satisfied with the investment options or fees in the HSA offered through work, or if your employer doesn’t offer an HSA, you can shop around and put money into an outside HSA plan. Keep in mind, though, that going with a different HSA account means your employer won’t automatically deposit the money tax-free on your behalf or pay any administrative fees for maintaining the account, and your contribution will be subject to Social Security and Medicare tax. You’ll have to fund the HSA with after-tax dollars throughout the year and then reconcile it on your tax return at the end of the year.

Of course, your HSA is just one piece of a bigger picture when it comes to your financial life. Decisions about whether to put money into an HSA, how much to save and when to use that money, should all fit into that bigger picture.

Article Footnotes

¹ Fidelity, How to plan for rising health care costs, https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs

² Fidelity, HAS contribution limits and eligibility rules for 2025 and 2026, https://www.fidelity.com/learning-center/smart-money/hsa-contribution-limits

³ HealthEquity, New Research Findings Reveal Employers Who Contribute to HSAs See Double-Digit Growth in Employee Participation, Sept. 26, 2024, https://ir.healthequity.com/news-releases/news-release-details/new-research-findings-reveal-employers-who-contribute-hsas-see  

⁴ Center for Medicate & Medicaid Services, Health Insurance Marketplace, https://www.cms.gov/marketplace/outreach-and-education/health-savings-account.pdf

⁵ If you use it for non-qualified expenses before age 65, you’ll owe taxes and a 20% penalty.

CRC# 4877608 10/2025