Is an HSA Another Retirement Plan?

How a health savings account can boost your retirement savings

Doctor talking to patient about prescription

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Health savings accounts (HSAs) didn't start as another type of retirement plan per se, but they can be used to help you reach your retirement goals. Their main purpose is to provide people with a tax advantage while paying healthcare expenses, but they can be used in other ways with the same tax perks. If you're healthy, have an HSA, and don't have many medical expenses, you might find that a health savings account also enables you to save more for retirement.

What Is a Health Savings Account?

An HSA is a fund that certain people can set up in order to pay for their future healthcare expenses. To be eligible to create an HSA you must be covered by a high-deductible health plan (HDHP). HDHPs often cost less than standard health plans, so you have the option of using the premium savings to fund an HSA tax-free.

What Is a High-Deductible Health Plan?

An HDHP doesn’t provide much in the way of coverage for routine healthcare expenses, such as visiting a doctor because you suspect you have the flu. Its purpose is mainly for major expenses, such as surgeries or other events that involve hospital stays or emergency transport. You'll pay more out of pocket to cover routine costs and major expenses up to the higher deductible.


HDHPs can have a deductible of no less than $1,400 for an individual plan and $2,800 for a family plan for 2021 and 2022. The maximum out-of-pocket limits are $7,050 and $14,100 in 2022, an increase from $7,000 and $14,000 in 2021.

How Much Can You Contribute to an HSA?

The amount of money you can add to your HSA may change each year following inflation and will vary based on the type of plan you have and your age. In 2021, if you were under the age of 55, you could contribute up to $3,600. For families who have HSAs, the limit is up to $7,200. In 2022, these limits increase to $3,650 and $7,300, respectively.

HSA owners age 55 and older get to save an extra $1,000 each year.

The funds you add to your HSA, so long as they are within the bounds of the yearly limits, are 100% nontaxable. When you add money to your HSA, it may come straight from your paycheck or direct from you, but either way, it results in an above-the-line tax deduction on your income tax return. You don't even have to itemize in order to receive this tax treatment when you add funds to your HSA.

When Is the Deadline to Add Funds to an HSA?

HSA contributions can be made until the tax filing deadline each year. That means you had until May 17, 2021, to make 2020 contributions to your HSA. For 2021, the deadline will be April 15, 2022.


The Internal Revenue Service extended the 2021 tax filing deadline from April 15 to May 17 in 2021 in response to the COVID-19 pandemic. This deadline may be extended further into 2022 for people who live in states affected by the winter storms and floods of 2021. Consult the IRS website for the most current status on filing deadlines in your state.

You could use this extra time to add additional funds to your HSA if you didn’t already reach the limit through payroll deductions during the calendar year. To do so, you would have to make direct contributions to your HSA account by writing a check or by setting up a direct transfer from your bank account.

How an HSA Can Assist in Your Retirement Planning

An HSA can help you reach your retirement planning goals in two major ways. First, all healthcare expenses you incur (before or after you retire) can be paid for with the money (and any earnings) in your HSA. Second, you'll pay no taxes on these withdrawals. In effect, you receive tax-free growth on the money you add to your HSA that you have put aside to cover healthcare expenses, whether or not you end up using it that way.

The second major advantage of an HSA occurs if you're lucky enough to be healthy and avoid major healthcare bills. Since HSA balances roll over each year, you can accumulate quite a bit of money in your account if it is not being spent. You can withdraw your HSA money for any reason after age 65, with no penalty or fees, if you build more money in the account than you need for your healthcare expenses after you retire. You’ll only pay basic income tax, as you would with a standard IRA distribution.


Make sure you compare your current taxes to those you'll pay if you hold the money in an HSA for retirement. Withdrawing funds from an HSA for non-healthcare reasons after you turn 65 could move you up a tax bracket and cause you to pay more taxes.

If it aligns with your healthcare needs and expectations, think about starting an HSA or increasing your HSA funding if you've maxed out your contributions to your other retirement savings accounts.

Consider these three factors and the outcomes they can provide for you:

  • Your employer can contribute to your account.
  • You can contribute to your account via payroll deductions.
  • You can contribute after-tax dollars.

If your employer contributes, you're basically being paid extra and are not taxed on the amount; your payroll deductions into your account are not taxed either. You can deduct both of these amounts on your taxes. If you contribute after-tax dollars, you can deduct the amount from your taxes as well.

If you can get all three of these contributions (up to the annual limits), you end up with a tax-deferred savings account that your employer helps you build. Two amounts are tax-deductible in the tax year they are contributed, and you still get potential tax-free withdrawals after you reach age 65.

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