IRAs are most people's best option for retirement savings if they don't have access to a workplace retirement plan, but they come with one big drawback: You're only allowed to contribute up to $6,000 in 2022 or $7,000 if you're 50 or older. That might be fine for some, but if you hoped to set aside even more money for retirement, you'll need a backup plan.

Fortunately, there may be another option available to you that offers many of the same benefits, plus a bonus tax break. Here's what you need to know.

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It's not technically a retirement account

Health savings accounts (HSAs) are intended for medical savings, but they also double as great retirement accounts for those who qualify. In order to open one, you need a high-deductible health insurance plan, which is defined as one with a deductible of $1,400 or more for an individual or $2,800 or more for a family.

As long as you check that box, you can set aside up to $3,650 in 2022 if you have an individual health insurance plan or $7,300 if you have a family health insurance plan. And adults 55 and older can tack on an extra $1,000 to these limits.

Your HSA contributions reduce your taxable income for the year, just like contributions to a traditional IRA. So if you earn $50,000 this year and put $3,000 in an HSA, the government will only tax you as if you earned $47,000. 

But unlike traditional IRAs, HSAs also enable you to make tax-free medical withdrawals at any age. It's best to avoid this, though, if you're using the account for retirement savings. Try to budget for medical care in a savings account or emergency fund so you can leave your HSA funds alone.

How it works in retirement

You can continue to take tax-free medical withdrawals from your HSA throughout retirement, but beginning at 65, you can also make non-medical withdrawals. Technically, you can do this under 65 as well, but doing so will bring a 20% penalty on the amount withdrawn, so it's not worth it. This penalty expires when you turn 65, but you'll still have to pay taxes on any non-medical withdrawals.

There aren't any rules about how quickly you must withdraw the funds in retirement, though. Many retirement accounts, including traditional IRAs, have required minimum distributions (RMDs). These are mandatory annual withdrawals that all seniors must take beginning in the year they turn 72. It's the government's way of ensuring it gets its tax cut of your savings. But HSA funds are safe from this requirement.

How to open an HSA

You can open an HSA with many banks and brokers, as long as you have a qualifying health insurance plan. It's best to go with a company that enables you to invest your funds. Otherwise, you'll only earn a small amount of interest on your money. Investing adds a risk of loss, but it also enables you to earn larger returns that can help you cover more of your retirement expenses.

Some employers also offer HSAs as an employee benefit. If that's the case for you, you can defer some of each paycheck to your HSA in the same way you'd set aside money in a 401(k). But if that's not an option, you can always transfer funds from a bank account on your own schedule.

Once you've got it set up, managing it is pretty similar to managing an IRA. You control what you invest in and how often you contribute funds. Just be mindful of the qualification requirements and contribution limits, which can change from year to year.

In 2023, for example, qualifying individuals may contribute up to $3,850 to an HSA, and families may contribute up to $7,750 as long as they have health insurance deductibles of at least $1,500 and $3,000, respectively. You can expect these limits to climb even higher in future years.

An HSA may not be the best choice for your retirement savings if you have other retirement accounts available to you or you feel tempted to tap your HSA early to pay for healthcare costs. It's best to explore all the options available to you before you decide where to put your extra cash.