How To Use Your HSA To Save for Retirement

Health Savings Accounts Can Be Used for More Than Medical Expenses in Retirement

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Health savings accounts (HSAs) provide a tax-advantaged means of saving for health care costs. While you might think of an HSA as a way to save and pay for current medical expenses, an HSA is an excellent way to save for retirement as well. That's because the money in an HSA can be invested and grow, leading to a tax-advantaged pool of money to pay for health care tax-free in retirement. And after age 65, the account functions more like an IRA, so you can use the money for whatever you want, you'll just pay income tax on the withdrawals.

Key Takeaways

  • HSAs allow you to save money for qualified medical expenses completely tax-free.
  • After age 65, your HSA functions more like an IRA. You can take withdrawals and pay income taxes, or you can take tax-free distributions to pay for qualified medical expenses.
  • You can allow the money and earnings in an HSA to accumulate and roll over year to year until you build a hefty account that you can use in retirement.
  • HSAs can be used in addition to retirement accounts such as 401(k)s.

How an HSA Can Help You in Retirement

A health savings account (HSA) is an account in which you can deposit pre-tax money for the express purpose of saving for medical expenses. You can deduct contributions to an HSA just like contributions to a 401(k) or IRA. However, a key difference is that you can also withdraw the money tax-free as long as you use it to pay for qualified medical expenses.

The IRS imposes an annual limit on the amount you can deposit into your account. For tax year 2023, the amount is $3,850 for individuals and $7,750 for families. For tax year 2022, the amount was $3,650 for an individual and $7,300 for a family. Any contributions you make above the annual limit could incur a 6% tax.


HSAs are different from flexible spending accounts (FSAs), so be careful not to confuse the two. A key difference is that unlike the money in an HSA, you can’t keep the money left in your FSA at the end of the year. That means that FSAs don’t provide the same potential as a retirement savings tool that HSAs do.

You can use an HSA as a retirement savings vehicle by investing your contributions and withdrawing money for qualified medical expenses in retirement. When you treat your HSA this way, you benefit from what’s known as a “triple tax advantage.” Here's how that works:

  • You get to deduct contributions, up to the current IRS limit, from your income
  • Your earnings grow tax-free; you won’t owe any taxes on the dividends, interest, or capital gains inside the HSA.
  • Any withdrawals to pay for qualified medical expenses in retirement are also tax-free
  • Other withdrawals after age 65 can be put toward other expenses, you'll just pay income tax on them first

What Are Qualified Medical Expenses?

There are more than 75 qualified medical expenses which include medical, dental, and vision expenses, and certain medications. You can also use HSA funds for some over-the-counter medicine, hospital expenses, and more.

When using an HSA to cover medical expenses, you must establish your account before incurring the expense to be considered qualified. And if using a rollover HSA, the established date will be the date of the original HSA.

Rules for Using Your HSA in Retirement

As with any tax-advantaged plan, some rules dictate when and how you can use the money in your HSA. 


Unlike an IRA or 401(k), you don’t have to take required minimum distributions (RMDs) from an HSA.

As long as you use the money to pay for qualified medical expenses, then you won’t owe any taxes at all on a distribution—regardless of when you take it. But what if you withdraw the money to pay for things other than qualified medical expenses? 

If you are under 65, the IRS taxes the distribution as ordinary income, and you may owe a 20% penalty. Once you turn 65, you’ll no longer have to pay a 20% penalty. At that point, your HSA effectively functions like an IRA, except that you can take tax-free distributions to pay for qualified medical expenses.

Particularly beneficial for retirees, an HSA allows you to take tax-free withdrawals to pay for Medicare premiums, except for Medicare supplemental policy premiums. However, once you start Medicare, you are no longer eligible to contribute additional money to your HSA.

How an HSA Might Beat Your 401(k)

Although we typically think of retirement accounts like 401(k)s as the primary source of money in retirement, there are two main ways an HSA can provide even better benefits as a retirement account:

  1. An HSA gives you a triple tax advantage: Even though contributions to a 401(k) are pre-tax, the deductions will be considered taxable income.
  2. HSAs do not require RMDs: You can continue to let your HSA grow even after you would otherwise have to start taking RMDs from a 401(k). This gives you more flexibility and control.

Remember that an HSA is not meant to replace a 401(k), as you can use your 401(k) withdrawals for more than just the medical expenses that an HSA limits you to. By using both a 401(k) and an HSA, you can save the maximum amount for health and other retirement expenses.


A health reimbursement arrangement (HRA) is another type of account that is similar to an HSA. However, only your employer contributes to an HRA, and HRAs cannot move with you to a new employer.

This table highlights a few of the key differences between an HSA and an HRA:

If you switch employers, you can take it with you If you switch employers, you lose it
The employee and employer can make contributions Contributions come from employer only
High-deductible health plan required High-deductible health plan not required
Contribution limits set by IRS Contribution limits set by employer

Opening an HSA

You can open an HSA on your own or through an employer if your employer offers one.

However, not everyone is eligible to open an HSA. To be able to open an HSA, the following requirements must be met:

  • You need to be enrolled in a high-deductible health plan (HDHP)
  • You can't be claimed as a dependent on someone else's tax returns
  • You cannot be enrolled in Medicare
  • You have no other form of health coverage

An HDHP is defined by the deductible and out-of-pocket expenses. The amounts change each year. For tax year 2023, the HDHP annual deductible must be at least $1,500 for individual coverage and $3,000 for family coverage. The out-of-pocket limits cannot exceed $7,500 for an individual or $15,000 for family coverage.

Frequently Asked Questions (FAQs)

What can an HSA be used for after retirement?

After age 65, you can use the money in your health savings account (HSA) for qualified medical expenses, as well as other expenses without incurring a 20% tax penalty. You will, however, need to pay income taxes on any withdrawals you take from your HSA when you use that money for other expenses outside of qualified medical expenses.

How much should you have in an HSA for retirement?

There is no hard and fast number for how much money you should have saved in an HSA for retirement. You should aim to save as much as you think you may need to cover medical expenses. This may include copays, prescriptions, over-the-counter medicine, and more. Keep track of your medical expenses to see how much you would need in one year.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. “26 CFR 601.602: Tax Forms and Instructions.”

  2. IRS. "Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans."

  3. IRS. "Publication 502, Medical and Dental Expenses."

  4. IRS. "Retirement Topics — Required Minimum Distributions (RMDs)."

  5. IRS. "Roth Comparison Chart."

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