Health Savings Accounts: The “Secret Sauce” for Retirement Planning

by Roy Ramthun, “Mr. HSA”

Health Savings Accounts (HSAs) are a valuable tool for saving money on health care costs, but they can also be an effective way to save for retirement. HSAs offer several tax advantages that make them a unique complement to traditional retirement planning. Here are some key benefits of using an HSA for retirement savings.

Triple Tax Advantage

HSAs offer a triple tax advantage. Contributions to an HSA are tax-deductible, growth on investments within the account is tax-free, and withdrawals for qualified medical expenses are also tax-free. This means that if you use the money in your HSA for qualified medical expenses, you won’t pay any taxes on your contributions or earnings.

But what if you don’t have enough medical expenses to use up all the money in your HSA? After age 65, you can withdraw funds from your HSA for any reason without penalty. If you withdraw funds for non-medical expenses, you will owe income taxes on the distribution, but you won’t owe the 20% penalty that typically applies to withdrawals made before age 65.

In addition, you can use your HSA to pay for Medicare premiums, which can help lower your retirement expenses.

Annual Accumulation

For 2023, the contribution limit for an HSA is $3,850 for individuals and $7,750 for families, plus an additional $1,000 catch-up contribution for those age 55 and older. Every cent you deposit and don’t spend rolls over automatically to the next year.

If you’re eligible to contribute to an HSA and have the financial means to max out your contributions each year, you could potentially save a significant amount of money on health care costs and build up a sizable nest egg for retirement.

Investment Opportunities

HSAs can also be used as investment vehicles. Unlike a health care Flexible Spending Account (FSA), which requires you to use the money in your account within a specific timeframe or lose it, funds in an HSA can be invested for the long-term. This means that you can potentially grow your savings over time and increase your retirement nest egg.

Many HSA providers offer investment options such as mutual funds, stocks, and bonds. Be sure to research the investment options available through your HSA provider and consider working with a financial advisor to develop an investment strategy that aligns with your retirement goals.


Another benefit of HSAs is their portability. If you change employers or retire, you can take your HSA with you. This is different from an FSA which is tied to your employer and cannot be transferred if you leave your job.  By rolling over your HSA to a new provider or leaving it with your current provider, you can continue to save for retirement and pay for health care expenses tax-free.

Tips for Using an HSA for Retirement Savings

To make the most of your HSA as a retirement savings tool, consider the following tips:

  • Max out your contributions each year, if possible.
  • Save your money – don’t spend it every time you have a health care expense. Let your balance grow over time.
  • Invest your HSA funds for the long-term to potentially grow your savings even faster.
  • Consult with a financial advisor to develop an investment strategy that aligns with your retirement goals.
  • Keep track of your medical expenses and save receipts in case you need to prove that a distribution was for a qualified medical expense. Doing so will provide the final tax savings.

HSAs can be a powerful tool for saving money on health care costs and building up a nest egg for retirement. By taking advantage of the triple tax advantage, annual accumulation, investment opportunities, and portability of HSAs, you can potentially save thousands of dollars in taxes and build a sizable retirement fund.