Health savings account for retirement: How an HSA benefits your plan

You may have discovered the immediate benefits of a Health Savings Account (HSA) as a tax-advantaged way to set money aside for current out-of-pocket health expenses. But are you aware that the money in your health savings account can be used to cover a wide range of medical expenses, including insurance premiums, in retirement?

Here’s what you need to know about HSAs.

What is a Health Savings Account (HSA)?

A health savings account (HSA) is a tax-advantaged account designed to help you pay for qualified medical expenses. An HSA combines the benefits of a savings account with investment potential, making it a key piece to your retirement plan.

In order to participate in an HSA, you must be enrolled in a high-deductible health plan (HDHP). This can either be through an employer-offered plan or by purchasing an individual policy.

HSA contribution limits 2026

The HSA contribution limit in 2026 is $4,400 for individuals and $8,750 for families. The HSA-eligible health plan for an individual must have a deductible of at least $1,700 and an out-of-pocket maximum of $8,500 to qualify for HSA participation. For family coverage, the plan must have a deductible of at least $3,400 and an out-of-pocket maximum of $17,000 to qualify.

If you’re 55 and over, you can contribute an extra $1,000 per year to your HSA.

Once you enroll in Medicare, you’re no longer able to make contributions. However, you can still withdraw HSA funds tax-free. Those funds can be used for a variety of medical expenses, including payment of Medicare premiums.

HSA benefits

Health savings accounts are worth considering because they are triple-tax advantaged, which makes them unique. The benefits of a triple-tax advantaged account are:

• You contribute pre-tax or tax-deductible funds.
• Earnings grow tax-free as long as they remain in the account.
• Withdrawals are not taxed if they are used to pay for qualified medical expenses.*

HSAs also offer significant flexibility in how the money is used and when. This can become particularly valuable in retirement.

• Savings in an HSA can continue to be held indefinitely, as unspent dollars carry over from year-to-year, even into retirement.
• Your HSA stays with you if you change jobs, retire or are no longer covered by a high-deductible health plan.
• After age 65, funds in an HSA can be used for non-medical reasons without incurring a penalty. However, you’ll be taxed on any distributions not used to cover the costs of qualified medical expenses.

*Prior to reaching age 65 or becoming disabled, if any distributions are taken for anything other than qualified medical expenses, the distribution is taxed as ordinary income and there is an additional 20% penalty tax.

Investing HSA funds

You can invest HSA dollars once you’ve reached a minimum balance threshold. This gives you the opportunity to grow your savings over time.

While you typically need to set aside a certain amount for healthcare expenses each year, the remaining amount can be invested (specific rules may vary by provider). Your HSA provider may also offer a few different investment options.

Your health savings account investment strategy should work in conjunction with your overall investment strategy, including retirement accounts and other investment accounts. Consider working with a financial professional to determine the most appropriate investment strategy for you.

HSAs as a retirement planning tool

It’s estimated that the average 65-year-old today may need over $172,000 in retirement to cover healthcare expenses. ¹

HSAs offer critical benefits that can help address this reality:

• Their unique tax advantages help you leverage your available dollars more effectively so you accumulate additional sums that can be targeted to meet medical costs in retirement.
• Your health savings account can be used to pay for health insurance premiums, including Medicare Part B and Part D premiums, and out-of-pocket expenses.
• Services often not covered by Medicare, such as hearing aids, eyeglasses and dental care, can be paid for using HSA dollars.
• HSA distributions can be applied toward long-term care insurance premiums and expenses.

If you’re still working for a company with more than 20 employees after age 65 and relying on the company’s provided insurance coverage and not Medicare A or B, you can continue to fully fund your HSA. When you do decide to retire, you’ll need to stop contributing to your HSA six months before applying for Medicare.

Start building your HSA today

If you’re covered under a qualified HDHP with an HSA component, contribute as much as you can, up to the maximum allowed. The sooner you begin setting money aside in an HSA, the greater the likelihood it can play a role in covering your healthcare costs in your retirement.

Investing funds you don’t need to meet current medical needs can help you build wealth for the future. Having a well-funded HSA in retirement may allow you to dedicate other savings and sources of retirement income to meet your living expenses outside of healthcare needs.

Frequently asked questions

What disqualifies you from an HSA?

You must be enrolled in an eligible high-deductible health plan (HDHP) to have access to an HSA. Eligible HDHPs have deductible and out-of-pocket maximum requirements.

Other reasons you may not qualify to open and contribute to an HSA include being covered by another health insurance plan, claimed as a dependent, or enrolled in Medicare.

Is it worth contributing to a health savings account?

There are a few reasons to consider opening and funding an HSA:

• Your contributions are tax-deductible.
• You can withdraw the money tax-free for qualified medical expenses.
• You’re able to invest your funds once you reach a minimum balance, which can be a good strategy if you don’t need to use them to cover medical costs.
• Once you reach age 65, you can withdraw the funds to pay for Medicare and other related insurance premiums in addition to out-of-pocket expenses.

What happens to HSA money if it’s not used?

The money in your health savings account is yours to keep, even if it’s through your employer and you change jobs. The funds carry over from year-to-year and can be used into retirement. Any HSA dollars you’ve invested continue to grow tax-deferred and can be withdrawn tax-free when used for qualified medical expenses.

An HSA may be one of many different sources of income in retirement. Learn how we can help you create a tax-diversified retirement income strategy.