How To Use Your HSA As A Retirement Plan

If you’re looking to maximize your retirement savings, using your health savings account (HSA) could be a wise choice. Not only can HSAs help pay for current medical expenses, but they can also be utilized as a supplementary retirement plan, similar to traditional options like 401(k)s or IRAs.

(A financial advisor can help you put together the best retirement plan for your individual needs and risk tolerance. They will also be able to help you best utilize your different account types.)

Here’s what you should know about HSAs and how they can be used to boost your retirement savings.

What is an HSA and how does it work?

HSAs are savings accounts that can be used to pay for medical expenses for those with high-deductible health plans.

In order to be eligible for an HSA, your health plan’s annual deductible cannot be less than $1,650 for an individual in 2025, or $3,300 for a family. Those amounts increase to $1,700 and $3,400, respectively, in 2026. Additionally, your plan’s out-of-pocket maximum cannot be more than $8,300 for an individual in 2025, or $16,600 for a family. For 2026, those numbers increase to $8,500 and $17,000, respectively.

Here’s how HSAs work: You or your employer can contribute funds to the HSA, which can then be used to cover your out-of-pocket medical costs during the year. Contributions are tax-deductible, and the money can be invested within the HSA and grow tax-free. Withdrawals are also tax-free as long as they are used for qualified medical expenses, making HSAs a triple-tax advantaged savings tool, according to many financial advisors.

In 2025, the HSA contribution limit is $4,300 ($4,400 in 2026) for individuals and $8,550 ($8,750 in 2026) for families. If you don’t have any medical expenses for a particular year, the money can continue to sit and grow in the account without any withdrawal requirements. You can make contributions up until the tax deadline, so you can make 2025 contributions until April 15, 2026.

Using an HSA as an additional retirement plan

In addition to using an HSA for medical expenses, it can also be used as another way to save for retirement. Once you reach age 65, money held in an HSA can be withdrawn and used for any reason, the only catch being that you’ll pay ordinary income taxes on withdrawals not used for qualified medical expenses.

This means that your HSA can essentially function similarly to 401(k) plans or IRAs. You’ll get tax deductions for contributions and the money will be able to grow tax-free until you reach retirement. While the amount you can contribute each year to an HSA is lower than that of 401(k)s and IRAs, it still gives a nice boost to your retirement planning. Catch-up contributions are also available for HSAs beginning at age 55, when you can contribute an additional $1,000.

However, money withdrawn prior to age 65 that is used for non-qualified expenses is subject to a 20 percent penalty.

How to invest your HSA

When it comes to investing in your HSA, you’ll likely want to be fairly conservative until you’ve built up enough to cover your expected medical expenses over the next few years. Remember that this money is first intended to help with the costs you’ll pay because of your high-deductible health plan, so taking on too much risk with your investments could mean that the money isn’t there when you need it. It probably makes sense to always hold a portion of your HSA in cash, money-market funds or other low-risk investments, for this reason.

However, once you feel you have saved enough to cover likely expenses for a few years, you can treat your HSA similarly to other retirement accounts. You can build a portfolio of stocks and bonds using mutual funds or ETFs. Index funds allow you to get diversified exposure to the markets at a low cost, which is part of why they’re so popular with investors. Some providers will even let you invest your HSA in individual stocks, but keep in mind that this comes with additional risks and you’ll want to research each holding before investing.

How to use your HSA in retirement

When you transition into retirement, your HSA becomes a versatile financial tool. Here are several ways you can use your HSA during retirement:

• Leave an inheritance for your spouse: By designating your spouse as the primary beneficiary, your HSA ownership will seamlessly transfer to your spouse upon your passing, allowing for tax-free growth and withdrawal for qualified medical costs.
• Withdraw for non-medical expenses: Once you’re 65 or older, you can withdraw money for non-medical expenses, subject to ordinary income tax. However, the 20 percent penalty for non-medical expenses does not apply after age 65.
• Cover health care costs: You can use your HSA to fund health care needs like COBRA premiums or Medicare Parts A, premiums. It can also offset expenses related to tax-qualified long-term care insurance.
• Use as a bridge to Medicare: If you retire before 65, your HSA can help you transition into Medicare by covering health expenses. However, once you’re enrolled in Medicare, you cannot make any more contributions to your HSA.

Bottom line

HSAs can be great tools for saving money for future healthcare costs but can also serve as another option for saving towards retirement. Withdrawals for qualified medical expenses are tax-free at any age, but once you reach age 65, you can use your HSA money for any reason, as long as you pay taxes on withdrawals used for non-medical expenses. This allows the HSA to function similarly to traditional retirement plans like 401(k)s and IRAs and can give your portfolio an extra boost toward achieving your retirement goals.

If you are looking for more ways to maximize your retirement savings, you may want to consult with a financial advisor, who can help you refine your strategy further.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.