Key Points
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Health savings accounts (HSAs) allow you to invest with pretax dollars.
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Your money will grow tax-free and can be withdrawn tax-free for qualifying medical expenses.
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If you are eligible, an HSA is a great way to invest for your future care.
Healthcare is probably going to cost you more than you think in retirement. Medicare benefits become available at 65, but they don’t cover everything. There are premiums to pay out of pocket, as well as co-pays, co-insurance costs, and excluded services.
Saving for these costs is crucial. Fidelity warns that the typical 65-year-old retiring today is looking at around $172,500 in out-of-pocket costs as a senior. Covering these could consume your nest egg very quickly unless you have a plan.
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For many retirees, that plan should come in the form of a health savings account (HSA). Here’s why.
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What is a health savings account?
A health savings account is an investment that you should absolutely consider making if you have a qualifying high-deductible health plan. In 2025, this means you must have a health insurance plan with:
- An annual deductible of at least $1,650 for self-only coverage and $3,300 for family coverage.
- An out-of-pocket maximum that does not exceed $8,300 for self-only coverage and $16,600 for family coverage
If you have a qualifying plan, you can contribute up to $4,300 for self-only coverage and $8,550 for family coverage this year.
When you contribute, you can take a tax deduction for the contributions, just as you can when you invest in a 401(k) or individual retirement account (IRA). And, just as with these other retirement plans, your money grows tax-free. However, there is an important difference between an HSA and a traditional 401(k) or IRA.
While those other accounts allow pretax contributions and tax-free growth, a traditional 401(k) and an IRA both require you to pay taxes on withdrawals. An HSA doesn’t as long as the money is used for eligible medical expenses. This means it essentially offers tax-free withdrawals like a Roth IRA, except that Roth accounts don’t come with the up-front tax break.
An HSA is the only account that provides the triple tax break: when you invest, when your money grows, and when you withdraw it for qualifying medical expenses. That feature makes it fantastic to save for healthcare costs as a retiree.
Should you contribute to an HSA?
Unfortunately, despite the benefits that HSAs offer, many people don’t contribute to them. In fact, Fidelity reported that just 23% of Americans are contributing to one, and only around 30% who have an HSA are investing the assets within it.
If you are eligible for an HSA but not using in one, you are missing out and should start contributing as soon as possible and investing the money you put into it. Investing in an HSA should be part of your retirement planning because you can contribute each year, invest, let the funds grow until you retire, and then take the money out for care costs.
And, if you don’t end up needing to pay for medical care, the money can be withdrawn penalty-free and just taxed at your ordinary rate after age 65. So it will be treated like a 401(k) if it turns out you’re healthy enough not to need a lot of medical help.
With the many benefits an HSA offers, there’s no real reason not to invest in one if you are eligible. Start putting your money to work today so you’ll be ready to cover your medical costs in your later years.
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