A health savings account (HSA) can help you cover qualified health care expenses tax-free. This may become especially important during retirement. In fact, a 65-year-old retiring today could spend $172,500 on health care in retirement, according to a study by Fidelity Investments.
But beyond its distinct tax benefits, an HSA can also serve as a secret weapon in your retirement savings arsenal. So let’s begin by exploring the basics of an HSA and how to get one.
HSA Benefits
If you have a high-deductible health plan, you can pair it with an HSA. An HSA offers three key tax benefits.
Contributions are tax-deductible or made on a pretax basis, so they could lower your taxable income. And contributions grow tax-free. Plus, withdrawals are also tax-free as long as the funds are used to cover qualified medical expenses. Fortunately, that covers a wide range of services.
Your employer may offer an HSA. But you can also open one yourself through many brokerage firms and banks.
In addition, an HSA can be an effective retirement savings tool if you use it strategically. So let’s take a closer look.
Invest Your Money
Some HSAs function similarly to traditional savings accounts. You deposit money into the account and it earns a small amount of interest over time.
However, many HSA providers also allow you to invest your money. In this sense, they function similarly to 401(k)s. You may have a menu of investment options such as mutual funds and exchange-traded funds (ETFs). This could potentially allow your money to grow substantially over years of saving.
So with that said, it’s also important to compare HSA providers. Pay attention to their investment options, fees, and features to decide which one may be best for you.
Maximize Your HSA
To make the most out of your savings, you should aim to maximize your HSA contributions each year.
For 2026, the HSA contribution limits are $4,400 if you have individual health coverage and $8,750 if you have family coverage.
Use Your HSA Funds in Retirement
If feasible, many advisers recommend you pay for current medical expenses out of pocket. By investing your HSA funds, this gives it the potential to grow and benefit from compound interest for years or even decades.
And once you’re retired, you can withdraw HSA funds tax-free to reimburse yourself for qualified medical expenses you covered in the past.
But if you plan to do this, it’s important you save all your medical services bills and receipts in a digital format. There’s no time limit for when you can use an HSA to reimburse yourself for qualified medical expenses.
You can also use these funds to cover qualified medical expenses you incur during retirement tax-free.
Take Advantage of the 65 Rule
Once you reach the age of 65, you can use HSA funds for non-qualified medical expenses or anything else without facing the 20 percent tax penalty. However, you’d pay ordinary income taxes on those withdrawals.
So you can essentially use HSA funds you don’t need for medical expenses to cover necessities in retirement.
Moreover, 65 is the age most people would qualify for Medicare. You can use your HSA funds to cover Medicare premiums including those for Part B and Part D.
However, it’s important to note that you can no longer make contributions to your HSA once you enroll in Medicare. But your account may still grow. And you can still use the funds. HSA funds don’t expire, and they roll over from year to year.
And unlike with traditional IRAs and 401(k)s, required minimum distributions don’t apply to HSAs. So there’s no specific age in which you have to start withdrawing funds. This gives your account more time and potential for growth.
The Bottom Line
An HSA can be an effective tool that can help you cover expensive medical bills, while providing you with key tax benefits. But it also can be used strategically as a retirement savings account. By working with the right HSA provider, you can invest your HSA contributions in securities such as ETFs and mutual funds, allowing it to potentially grow and benefit from compound interest over decades.
In retirement, you can use these funds to cover qualified medical expenses tax-free or reimburse yourself for such expenses you made in the past. Just remember to keep a solid record of your medical bills, receipts, and related documents. Plus, you can use your HSA funds on anything that’s not a qualified medical expense once you reach age 65 without facing the 20 percent penalty. But you’d owe income tax on such withdrawals.
So as you can see, an HSA could be very rewarding during retirement. But you should carefully manage your HSA with the guidance of a qualified financial adviser to make the most out of it.
The Epoch Times copyright © 2026. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
