When you think about saving for retirement, different options might come to mind. You may be inclined to sign up for your employer's 401(k) plan so you can have contributions deducted from your paychecks automatically and potentially snag a company match. And if you don't have access to a 401(k) plan through your job, you may decide to fall back on an IRA instead.

Some people even opt to save for retirement in a taxable brokerage account. Doing so means losing the tax benefits that come with an IRA or 401(k) plan, but it also means getting more flexibility with your money. With a taxable brokerage account, you can withdraw funds penalty-free if you end up retiring early, and there's no annual contribution limit to stick to.

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Meanwhile, one savings plan that may not hit your radar in the context of retirement is a health savings account, or HSA. Technically, an HSA isn't a retirement savings plan in the classic sense. But an HSA could easily serve as a form of retirement savings. And the tax benefits you might reap along the way could surpass those offered by any other individual retirement plan.

Why HSAs make a lot of sense for retirement

The purpose of an HSA is to set aside money for healthcare spending -- hence the name. But once retirement arrives, you may find that healthcare is one of your greatest monthly expenses -- or perhaps even your greatest one, if you have a paid-off home.

Meanwhile, the cost of healthcare has risen steadily over the years, and it's projected to stay on that path. So chances are, your Social Security benefits won't do a great job of helping you keep up with healthcare expenses. Rather, you'll need an additional income source to make sure you can manage your medical bills as a senior. That's where an HSA comes in.

HSAs are so valuable because they offer three distinct tax benefits:

  • Contributions are tax-free
  • Investment gains are tax-free
  • Withdrawals are tax-free, as long as that money is used for qualified healthcare expenses

Since an HSA's main purpose is to serve as a means of paying medical bills, the IRS doesn't take kindly to non-medical withdrawals, and you'll be penalized if you go that route. But once you turn 65 years of age, you can take an HSA withdrawal for any purpose without getting hit with a penalty.

In that case, you will have to pay taxes on the withdrawals you take. But that's no different than paying taxes on traditional IRA or 401(k) withdrawals.

Don't pass up an HSA in 2023

If your health insurance plan is compatible with an HSA in 2023, then it pays to not only sign up, but aim to max out. In 2023, you can qualify for an HSA with a minimum individual deductible of $1,500 and a minimum family deductible of $3,000. Your health plan's out-of-pocket maximum also needs to be $7,500 or less as an individual, or $15,000 or less if you have family coverage.

Meanwhile, your maximum HSA contribution for 2023 will hinge on your age and your level of coverage. If you're under 55, you can contribute up to $3,850 as an individual or $7,750 at the family level. If you're 55 or older, these limits rise to $4,850 and $8,750, respectively.

An HSA may not seem like an obvious choice when it comes to building retirement savings. But you're going to need to pay for healthcare as a senior, and your costs might really add up.

Socking funds away in an HSA is a good way to help ensure that you'll be able to keep up with those bills. And if you happen to wind up in the fortunate position of having more money than you need to pay for healthcare, you can always treat your HSA like a traditional retirement plan once you turn 65.