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 money you save 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.
An HSA is a tax-advantaged account used to pay for qualified medical expenses. 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.
The HSA contribution limit in 2025 is $4,300 for individuals and $8,550 for families. The HSA-eligible health plan for an individual must have a deductible of at least $1,650 and an out-of-pocket maximum of $8,300 to qualify for HSA participation. For family coverage, the plan must have a deductible of at least $3,300 and an out-of-pocket maximum of $16,600 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.
HSAs are unique in that they’re triple-tax-advantaged. This means:
HSAs also offer significant flexibility in how the money is used and when. This can become particularly valuable in retirement.
Like a 401(k) or IRA, 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 HSA 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.
It’s estimated that the average 65-year-old today will need roughly $165,000 over the course of their retirement to cover healthcare expenses.1
HSAs offer critical benefits that can help address this reality:
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.
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.
Invest dollars you don’t need to meet medical needs today to 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 other living expenses outside of healthcare needs.
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.
There are a few reasons to consider opening and funding an HSA:
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. Read more about the importance of creating a tax-diversified retirement income strategy.
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