Health Savings Accounts: The Often Forgot About Retirement Tool
Health Savings Accounts: The Often Forgot About Retirement Tool
When you hear retirement account, you typically think of 401(k)s, IRAs, and Roth IRA’s. But there’s another tool that’s often overlooked—one that combines healthcare savings with retirement planning power. Enter the Health Savings Account (HSA).
HSAs aren’t just designed to cover medical costs today. Handled strategically, they can become one of the most tax-efficient retirement accounts available. In fact, they offer a triple tax advantage. Let’s dive into what that means, how HSAs work, and why they can be a powerful piece of your retirement strategy.
What Is an HSA?
A Health Savings Account is a tax-advantaged account available to individuals enrolled in a high-deductible health plan. Just like the government has created tax-advantaged retirement accounts to incentivize you to save for retirement, they have created the HSA to incentivize you to save for health care costs. Money you contribute to an HSA can be withdrawn for qualified medical expenses such as prescriptions, doctors’ appointments and dental work, among others.
However, if you don’t incur any medical expenses in a given year, you don’t lose any of the benefits of the HSA, because you can keep that money in the account and it can continue to grow and compound over time.
The Triple Tax Advantage
What do I mean when I say it offers a triple tax advantage?
Tax-deductible contributions
Contributions to an HSA reduce your taxable income. For 2025, you can contribute up to $4,300 as an individual or $8,550 for a family, with an additional $1,000 “catch-up” contribution if you’re 55 or older.Tax-free growth
Once inside the account, your contributions can be invested in mutual funds, ETFs and other investments. Any growth—whether from interest, dividends, or capital gains—is tax-free.Tax-free withdrawals (for qualified medical expenses)
Withdrawals used for eligible healthcare costs are completely tax-free.
In other words, you’re saving on taxes on the way in, while the account is growing, and again on the way out.
So, the tax benefits of an HSA have been made clear, but how exactly is it a retirement tool rather than just a healthcare tool?
First off, healthcare is a significant part of retirement expenses. Medicare doesn’t cover everything. Having an extra account to pay for some of these expenses without having to pay income tax on it can be a gigantic advantage. Every dollar you spend on healthcare in retirement from an HSA is a dollar you don’t have to dip into your retirement accounts for; allowing those dollars to stay invested.
Secondly, when you reach age 65, you can withdraw from the HSA for any reason without incurring a penalty. It will be taxed as income if it’s not used for medical expenses, but it will no longer be penalized once you’re 65 or older. So, it could potentially be used as an extra source of income if you end up not needing it for medical expenses.
If you're eligible for an HSA, consider these actions items:
- Start contributing to it. Start small if your budget is tight, but get started now
- If your budget is larger, consider maxing our your HSA and paying medical expenses out of pocket. You’ll get a tax deduction now, and you just may wind up with a significant extra nest egg that will make your retirement that much more comfortable.
Is an HSA a part of your financial plan? If it isn’t, you may want to take a 2nd look. Many overlook HSAs because they view them solely as healthcare accounts. But reframing them as retirement savings accounts with healthcare perks changes the picture.
Ryan Page, CFP®, MBA®
Office & Text:720-826-1092
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
Investing involves risk including loss of principal. No strategy assures success or protects against loss.
This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.
