Saving for retirement can be a huge financial challenge, especially when out-of-pocket healthcare costs alone could add up to as much as $325,000 for some senior couples. The good news is, a number of tax-advantaged accounts help make saving easier.

Unfortunately, not everyone is taking advantage of them. In fact, millions of Americans could be missing out on an especially valuable account that provides some extremely generous tax breaks. 

Smiling man sitting in front of piggy bank with coins stacked next to it.

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A savings account with unparalleled tax benefits

So what is the account most Americans are overlooking? It's a health savings account, or HSA. According to a recent Schwab survey of employed workers with 401(k)s, as many as 77% of them are offered a health savings account by their employer, yet just 45% use it. 

Health savings accounts aren't available to everyone. You must have a qualifying high-deductible health insurance plan to be eligible. But if your employer offers one or you're eligible to open one on your own, you absolutely should be contributing to it.

That's because HSAs don't just allow you to save to cover healthcare costs you'll incur in the near future; you can put money into your account (up to annual contribution limits), invest it, and leave it to grow. The contributions you make are in pre-tax dollars, just like those to a 401(k) or an IRA. But here's the big difference from these other retirement accounts: Any money you withdraw from an HSA can also be taken out tax free as long as it's used for qualifying medical expenses.

That's right: While you have to choose between an up-front tax break with traditional 401(k) or IRA accounts or tax-free withdrawals with Roth 401(k) or Roth IRAs, you get the tax savings on both ends if you invest in an HSA -- as long as you withdraw the money for medical expenses. That makes them the most valuable retirement savings account, since no other one provides the chance to double dip on tax savings like this. 

The catch is that you must use the money for healthcare expenses to get this double tax break. For many seniors, that's not a problem given that medical expenses in retirement can be astronomical. But if you're healthy as a retiree, you don't have to worry about losing out on the money invested. If you withdraw money from an HSA for anything other than health expenses before age 65, you're subject to a 20% tax penalty on the withdrawal. But if you take out money after 65, it's taxed as ordinary income with no penalty if you don't use it to pay for medical services. 

So the worst that happens is you get the up-front tax breaks a traditional 401(k) or IRA would provide and are taxed on distributions from your HSA as ordinary income if you don't need many medical services. But if you're like most older Americans and a good portion of your money goes to medical care, investing in an HSA will mean the costs of that care are much cheaper. 

Should you invest for retirement in a health savings account?

If you have access to a health savings account, there's little reason not to use it. You can either withdraw the money to cover medical care as a retiree and get the double tax breaks this account provides or you can exercise the option to take the money out for any other reason after age 65 and be taxed on the income just as you would with a traditional 401(k).

So if you're eligible to invest in an HSA and aren't taking the opportunity, sign up and start contributing. You'll be glad you did.