Health Savings Accounts (HSAs) offer unmatched tax advantages:
- Tax-free contributions
- Tax-deferred growth (as long as the funds stay in the account)
- Tax-free withdrawals for qualified medical expenses
But still, too many people are unaware of the tremendous advantages that health savings accounts have to offer – even in retirement.
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HSAs Are Underutilized in Retirement
Despite their benefits, HSAs are underfunded. According to Devinir, only 60% of HSA owners contribute each year.
Even fewer, 15%, contribute the maximum allowed. And 21% of accounts are completely unfunded. This underutilization leaves significant savings potential on the table.
Part of the problem is lack of investor education. For example, a Fidelity report shows that 1 in 2 Americans are unfamiliar with HSAs and their triple-tax advantage. Also, many people labor under the misconception that HSAs have a “use-it-or-lose-it” rule, like workplace flexible savings accounts (FSAs).
The fact is, most people don’t fully appreciate the value of the health savings account as a strategic long-term financial asset in retirement. In fact, in some respects, they are even better than IRAs and 401(k)s.
This blog post will help you understand how HSAs can help you accumulate wealth, and serve as a great supplement to your retirement income long after you turn sixty-five.
So you can take full advantage of your HSA benefits, and maximize the after-tax value of your retirement savings.
Penalty-Free Withdrawals After 65
But HSAs have two significant advantages not well understood by the general public: Once you turn 65, the normal 20% penalty on non-qualified withdrawals goes away.
Any withdrawals after your 65th birthday, even for reasons other than to pay for medical and dental expenses, are only subject to income tax. That’s just like a traditional IRA or 401(k) distribution.
And, of course, withdrawals to pay for medical and dental expenses still qualify for tax-free treatment. That’s a significant advantage compared to other types of tax-deferred retirement accounts and annuities.
Additionally, unlike IRAs and 401(k)s, HSAs have no required minimum distributions. You are free to let the money accumulate tax-deferred for as long as you live.
However, they can serve as long-term retirement assets. Medical expenses in retirement are significant. Fidelity estimates a couple retiring today will need over $300,000 for healthcare costs during their lifetimes.
HSAs and Self-Directed Investing
Many people don’t realize that HSAs can be invested in a variety of assets, including:
- Mutual funds
- ETFs (Exchange-Traded Funds)
- Treasuries and fixed-income investments
Investing your HSA funds can significantly increase your retirement savings. As of 2024, only 13% of all HSA assets were invested beyond cash—yet these accounts represented 37% of total HSA assets.
Self-directed investing can be a great move if you have enough assets in HSA, or you’re in good health and don’t expect to need to spend your HSA funds on health care in the foreseeable future.
Important: Remember that investing involves risk: It’s possible to lose some or all of what you invest. That 2024 snapshot from So if you choose to go this route, make your investment decisions with a qualified financial advisor.
Can You Contribute to an HSA in Retirement?
Yes, you can contribute to a Health Savings Account (HSA) after age 65, as long as you are not enrolled in any part of Medicare.
Here’s what you need to know:
- Once you enroll in Medicare (Part A, Part B, or any other part), you are no longer eligible to contribute to an HSA.
- If you delay Medicare enrollment (e.g., because you’re still working and covered by an employer’s high-deductible health plan), you can continue contributing to your HSA.
Beware the HSA Retroactive Enrollment Trap in Retirement
If you plan to delay Medicare enrollment, avoid retroactive enrollment pitfalls. When you apply for Medicare, your Part A coverage may backdate up to six months.
Ordinarily, this isn’t a problem. But if you’re an HSA contributor, your enrollment in Medicare could make you ineligible to contribute to an HSA during those months.
Tip: Stop HSA contributions at least six months before enrolling in Medicare. That way, you won’t accidentally overcontribute to your HSA, and you’ll potentially avoid tax penalties.
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HSA in Retirement: The Bottom Line
HSAs are more than just a tool for medical expenses—they’re a powerful retirement savings vehicle.
With unmatched tax advantages, they offer an opportunity to grow wealth tax-free while preparing for inevitable healthcare costs.
Don’t leave money on the table. Contribute as much as you can, and consider investing your HSA dollars. The sooner you start, the more you’ll have to secure your future.
Let one of our Personal Benefits Managers help you get this done.
For Further Reading:
Hi! I’m Mike Montes, and I’m one of your Personal Benefits Managers. I like working with HSA for America because we’re creating solutions to healthcare problems. Our focus on money-saving alternatives like HSA plans and health sharing programs, and the variety of health share programs we offer, are what set us apart. Read more about me on my Bio page.
