What if I told you that you might be able to make use of a financial account that helped you pay for healthcare expenses, helped you avoid some taxes, let you withdraw certain funds on a tax-free basis, and didn't even mandate required minimum distributions (RMDs)? It might sound too good to be true, but such an account exists.
Meet the Health Savings Account (HSA).
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Versatile and valuable
As you've probably guessed, a Health Savings Account (HSA) is a financial tool that lets you stockpile dollars for future healthcare-related expenses. In many ways, it's a lot like a Flexible Spending Account (FSA) -- but more flexible!
For example, while FSAs are largely use-it-or-lose-it over the course of a year, HSAs let your money accumulate over years if it's not used. And while you typically select your contribution amount at the beginning of the year for an FSA, you can contribute throughout the year with an HSA, until tax day.
An HSA is also like a health reimbursement account (HRA), but it's owned by you, not your employer, and it stays with you if you move from job to job.
Health savings account basics
An HSA offers tax savings in three ways:
- You contribute pre-tax money, as you might with a traditional IRA. So your contributions are deducted from your taxable income, shrinking your tax bill.
- When the money grows in your account, you don't pay taxes on those earnings.
- When you take money out for qualified healthcare expenses, you pay no taxes on it then, either.
Pretty great, right?
There are a few caveats, though. For one thing, you can only open an HSA if you are enrolled in a high-deductible health plan. And, as with many savings plans, there's a limit to how much you can contribute to it each year. For 2025, the limit is $4,300 for an individual and $8,550 for a family. Those limits are rising to $4,400 and $8,750, respectively, for 2026. Those 55 or older may be able to contribute an additional $1,000.
Healthcare is expensive!
Healthcare is costly enough for most of us right now, and it can be even more costly in retirement, when our bodies are older and more likely to have developed some issues.
According to Fidelity, a 65-year-old person retiring in 2025 can expect to spend $172,500, on average, on medical and healthcare expenses throughout their retirement. That doesn't even include long-term care, over-the-counter medications, or most dental services. For a married couple, the average total is $345,000.
One way to keep your retirement healthcare costs under control is to make smart Medicare decisions. But whether you're retired or not yet retired, there will likely still be plenty of healthcare expenses coming out of your own pocket. That's where an HSA comes in.
You can use money in your HSA for expenses such as ambulance rides, labwork fees, surgery, vaccines, X-rays, hospital stays, dental crowns and bridges, prescription contact lenses, and much more. There are many other qualified expenses and some non-qualifying ones, as well (such as hair transplants and teeth whitening).
Using your HSA for retirement savings
What's great about HSAs is that they can be used for retirement savings, too. For example, you might load yours up with money in many years while you're working. Assuming you don't spend it all on healthcare expenses, it can just stay in the account, waiting for when you do need to spend on healthcare -- such as in retirement.
Better still, that money can be invested while it's in your account, so it can grow on its own over time, too. You might, therefore, perhaps accumulate, say, $20,000 in an HSA while you're working. Over many years, it might become $25,000 or $30,000 -- and you'll be able to spend all that tax-free on healthcare expenses in retirement. (It's a lot like a Roth IRA in this regard.)
If you retire early, before you're able to enroll in Medicare at age 65, you could use that money to pay for healthcare costs. Once you're in Medicare, that money could cover premiums you pay, and it might also be used to pay for part of a long-term care policy.
Here's the best part: If you've accumulated more than you need for healthcare costs in your HSA, once you turn 65, you'll be able to take money out of the account for anything -- not just healthcare expenses. You will face a tax on such withdrawals, though. In this way, it's a lot like a traditional IRA -- but it doesn't feature required minimum distributions (RMDs).
So take some time to learn more about HSAs and their rules, to see if one could serve you well. Some see HSAs as the most underrated retirement accounts -- for good reasons.
