Retirement Savings Uncovered: Discover How a Little-Known Account Can Increase Your Retirement Fund

Unlocking the Retirement Power of HSAs

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Health savings accounts (HSAs) offer unique tax advantages that can significantly enhance your retirement nest egg, effectively turning your medical savings into a powerful retirement resource.

Main Points to Remember

• An HSA can serve as a long-term savings tool, not just for medical expenses.
• These accounts provide threefold tax advantages that can help grow your retirement funds.
• After turning 65, the tax perks of HSAs may surpass those of IRAs and 401(k)s, as you can make tax-free withdrawals for eligible healthcare costs.
• For 2025, the maximum HSA contribution is $8,550 for families and $4,300 for individuals. In 2026, these limits rise to $8,750 and $4,400, respectively.
• If you are 55 or older, you are allowed an extra $1,000 in contributions each year.

When planning for retirement, you might not immediately think of an account designed for healthcare costs. However, HSAs come with a range of tax benefits that make them worth considering as part of your retirement strategy.

The Triple Tax Benefits of HSAs

Many people view HSAs solely as a way to pay for medical bills, but these accounts offer three major tax advantages that can help you build wealth for retirement:

1. Your HSA contributions are made with pre-tax dollars and are tax-deductible, even if you don’t itemize on your tax return.
2. Any interest or investment gains within your HSA grow without being taxed.
3. Before age 65, withdrawals for qualified healthcare expenses are tax-free. If you use the funds for other purposes, you’ll owe income tax plus a 20% penalty. After age 65, you can withdraw money for any reason without penalty, though non-medical withdrawals are taxed as income.

Note

To open and contribute to an HSA, you must be enrolled in a high-deductible health insurance plan. If you later switch to a different type of plan, you can still use your existing HSA funds, but you can no longer add new contributions.

How HSAs Outperform 401(k)s and IRAs After 65

HSAs provide tax advantages that traditional retirement accounts like 401(k)s and IRAs do not, making them especially valuable for those looking to supplement their retirement income.

Unlike IRAs and 401(k)s—where contributions and earnings are generally taxed (Roth accounts use after-tax dollars, and withdrawals from traditional accounts are taxed)—HSAs allow for tax-free withdrawals for qualified medical expenses at any age. Additionally, while most retirement accounts require you to reach age 59½ for penalty-free withdrawals, HSAs let you access funds for healthcare costs at any time without penalty.

Note

Once you reach 65, you can use HSA funds for any purpose without incurring a penalty. However, if you spend the money on non-medical expenses, those withdrawals will be taxed as regular income.

Tips for Maximizing Your HSA for Retirement

To get the most out of your HSA as you plan for retirement, consider these strategies:

• Anticipate future healthcare costs and reserve HSA contributions for later use.
• Think of your HSA as an additional retirement account, since withdrawals for medical expenses remain tax-free after age 65.
• Make larger contributions early to benefit from tax deductions and enjoy tax-free growth and withdrawals in the future.