How to Use a Health Savings Account (HSA) for Retirement Planning and Tax-Free Growth

Introduction: The Most Underused Retirement Strategy in the Tax Code

Most people think of a Health Savings Account (HSA) as a tool to cover doctor visits or emergency room bills. What they don’t realize is that it can also be a powerful, tax-advantaged investment vehicle—one that not only reduces your taxes now, but also builds tax-free retirement income for later.

The HSA is the only account in the U.S. tax code that offers triple tax benefits:

• Contributions are tax-deductible

• Growth is tax-free

• Withdrawals are tax-free when used for qualified medical expenses

But here’s where savvy investors go a step further: they don’t spend their HSA now. They let it grow—invested like a retirement account—and use it as a stealth IRA for healthcare expenses in retirement.

In this blog, we’ll walk through how to use an HSA for retirement planning, who qualifies, contribution strategies, and how to turn today’s medical account into tomorrow’s tax-free nest egg.

Coming soon: Read our blog on Estate and Insurance Planning for Business Owners to see how HSA strategy fits into a broader long-term wealth plan.

What Is a Health Savings Account (HSA)?

An HSA is a tax-advantaged account designed to help people with high-deductible health plans (HDHPs) pay for medical expenses. Unlike a Flexible Spending Account (FSA), your HSA contributions roll over year to year, and the account can be invested like a 401(k) or IRA.

2025 Contribution Limits:

• $4,300 for individuals

• $8,550 for families

• $1,000 catch-up contribution for those 55+

To qualify, you must:

• Be enrolled in a qualifying HDHP (minimum deductible: $1,650 individual / $3,300 family)

• Not be enrolled in Medicare

• Not be claimed as a dependent on someone else’s tax return

• Have no other disqualifying health coverage (such as a general-purpose FSA)

The Triple Tax Advantage: Why HSAs Beat Other Accounts

There’s no other account like the HSA:

Account Type	Tax-Deductible Contributions	Tax-Free Growth	Tax-Free Withdrawals
Traditional IRA	✅	✅	❌ (taxed at withdrawal)
Roth IRA	❌	✅	✅ (after age requirements)
401(k)	✅	✅	❌ (taxed at withdrawal)
HSA	✅	✅	✅ (if used for medical expenses)

That means:

• You get a deduction now

• Your money grows without being taxed

• You withdraw tax-free later (for medical use)

It’s the most tax-efficient savings tool available—and few people use it for long-term planning.

Using an HSA as a Retirement Account

Here’s the strategy that high-income earners and forward-thinking planners use:

• Contribute the maximum amount every year

• Don’t touch the money for current expenses

• Pay medical costs out-of-pocket while saving receipts

• Invest the HSA in growth-focused assets (stocks, ETFs, etc.)

• Use it decades later for qualified withdrawals—or reimburse yourself at any time using saved receipts

Why this works: The IRS allows delayed reimbursement for any qualified expense you’ve already incurred, as long as it was after the HSA was established and while you were HSA-eligible.

That means you could pay $1,200 for a dental procedure in 2025, then withdraw that $1,200 tax-free in 2040—after years of compound growth.

Important: Save every receipt and track your expenses meticulously. The IRS requires you to prove that a distribution was for a qualified expense.

Qualified Expenses: What You Can Use It For

Your HSA can be used tax-free for a wide range of health-related expenses:

• Doctor visits, hospital stays, prescriptions

• Dental and vision care

• Chiropractors and mental health therapy

• Medicare premiums (in retirement, excluding Medigap)

• Long-term care services and eligible premiums

• Medical devices, glasses, hearing aids

Pro Tip: In retirement, healthcare becomes one of your largest expenses—an HSA is your best hedge.

What Happens After Age 65?

Once you turn 65, your HSA becomes even more flexible:

• You can still withdraw tax-free for medical expenses

• You can withdraw for non-medical expenses without a penalty—but they’ll be taxed like a traditional IRA

This gives your HSA dual functionality:

• Tax-free account for health care

• Backup retirement account if you need to tap it for other purposes

Unlike a traditional IRA:

• No required minimum distributions (RMDs)

• No penalty for non-medical use after age 65 (just standard taxation)

HSA Investment Strategies: Let It Grow

To make this work for retirement planning, don’t just leave your HSA in cash.

Once you reach a provider’s minimum cash balance (typically $1,000–$2,000), you can invest your HSA balance in:

• Mutual funds

• Index funds

• ETFs

• Target-date retirement funds

Look for an HSA provider that:

• Has low investment fees

• Offers robust account management tools

• Integrates with your banking and tax software

Treat your HSA like a Roth IRA—with a focus on growth.

Common Mistakes to Avoid

• Using HSA funds for short-term medical bills instead of investing

• Not saving receipts for potential future tax-free withdrawals

• Failing to invest HSA funds—keeping it in cash misses the long-term opportunity

• Overcontributing—excess contributions are subject to a 6% excise tax unless corrected

• Withdrawing funds for non-qualified expenses before 65—this triggers a 20% penalty plus income tax

HSA vs. Traditional Retirement Accounts: When to Prioritize

When building a retirement plan, HSA contributions should generally be prioritized after your 401(k) match, but before Roth or IRA contributions—especially if:

• You’re already maxing out other accounts

• You expect high healthcare costs in retirement

• You want tax diversification in retirement

This adds a tax-free layer to your overall portfolio.

Note: If both spouses are over age 55, each must open their own HSA to make the $1,000 catch-up contribution. One person cannot contribute $2,000 to a single account.

Conclusion: Start Small, Grow Smart, Retire Tax-Free

The HSA is not just a medical account. It’s a strategic wealth vehicle that, when used correctly, offers a level of tax efficiency unmatched by any other account type.

So don’t think of your HSA as a spending account. Think of it as a tax-free retirement war chest for the medical expenses that will inevitably come.

Looking to build a fully integrated plan? Check out our blogs on Estate Planning Strategies to Avoid Estate Tax: What High-Net-Worth Families Need to Know to complete your long-term picture.

Start investing your HSA. Start keeping receipts. Start thinking long term.