Americans are increasingly embracing the health savings account — a tax-advantaged account for those enrolled in a high-deductible health plan that can be used to save for medical expenses. Indeed, HSAs have had about a 40% adoption rate among people with access since their launch in 2003, according to data from a 2025 report from the U.S. Bureau of Labor Statistics. That is a figure that closely trails the 45% adoption rate of 401(k)s after the same amount of time, according to Georgetown Law’s analysis of the Revenue Act of 1978, the act which created 401(k)s.

Most Americans use these vehicles for their current health expenses, but they can be a key component of a smart retirement strategy, pros say. “It’s important to see that an HSA is more than just a way to pay for current expenses. It can also help you plan for the future,” says Amy Ray, director of advice and wellness product solutions at Transamerica. You may want an adviser to help you figure out this and other retirement planning strategies; if so, you can find advisers using CFP Board, NAPFA and you can get matched with fiduciary advisers with this free tool from our ad partner SmartAsset.

How can an HSA be used to save for healthcare — and retirement?

The rare tax advantage of tax-deductible contributions, tax-deferred growth and tax-free withdrawals when used for qualified medical expenses are what make HSAs unique, says Bruce Maginn, adviser at Solomon Financial.

HSAs let you save pretax money for current and future healthcare costs. “Contributions, growth and withdrawals for qualified medical expenses are all tax-free, including expenses not paid by insurance such as your deductible and coinsurance costs and even dental, vision and over-the-counter expenses. Your balance rolls over each year, stays with you if you change jobs and can even support you in retirement,” says Kevin Robertson, chief growth officer at HSA Bank.

Indeed, HSAs are personally owned, portable and investible accounts that stay with you for life. “The money is yours, you can save it, invest it and use it when and how you need for qualified healthcare expenses,” says Dr. Steve Neeleman, founder and vice chairman at HealthEquity, the nation’s largest HSA and consumer-directed benefits administrator. So you needn’t just think of them as a place to put healthcare moneys you might need soon.

To better understand HSAs, it may help to think of it as a healthcare IRA, says Ray. “Make regular contributions, keep enough cash for upcoming medical bills and invest the rest for growth over time. Use the account for qualified medical expenses and keep your records organized. The biggest mistake is using the HSA like a checking account and spending it all each year, since that can limit how much your savings can grow,” says Ray.

Eric Blattner, partner at Divvi Wealth Management, says HSAs can be a retirement income vehicle too, even though most people think of them purely as a way to pay for medical expenses. “Withdrawals from HSAs for nonqualified expenses after turning 65 are no longer penalized. At that point, only ordinary income applies to these nonqualified distributions, making them similar to distributions from a pretax 401(k),” says Blattner. That’s right, after age 65, HSAs allow penalty-free withdrawals for any purpose, subject to ordinary income tax.

Of course, you might need that savings for healthcare: A 65-year-old retiring today could spend $172,500 on healthcare in retirement, according to the Fidelity Investments 2025 Retiree Health Care Cost Estimate. This figure assumes enrollment in Medicare Parts A, B and D but doesn’t include long-term care expenses, which can add significantly to one’s healthcare costs in retirement.

How to use an HSA

For his part, Neeleman says, the smartest way to use an HSA is to treat it as three tools in one: save, spend and invest. “Save — fund it consistently, ideally up to the annual limit which is $8,750 for families and $4,000 for individuals in 2026. Spend — use HSA dollars for qualified healthcare expenses when you need them, including prescriptions, doctor visit to dental, vision, mental health care and preventative services. There’s now permanent telehealth coverage retroactive to Jan. 1, 2025. Invest — once you reach a certain threshold, which varies by HSA provider, you can invest your HSA funds in mutual funds, stocks and other investment options. This makes your HSA a powerful retirement savings vehicle in addition to covering current medical needs,” says Neeleman.

HSAs vs. 401(k)s

When comparing HSAs and 401(k)s, note that you can find both through payroll deductions, as well as to invest money and to build financial security. “But there are key differences. A 401(k) is meant for general retirement income, while an HSA is for healthcare costs and you need to have a high-deductible health plan to contribute. HSAs also have special tax benefits for qualified medical withdrawals, while 401(k) withdrawals are usually taxed,” says Ray. Indeed, the rules for taking money out early are also different, so it’s important to treat the accounts differently.

Both accounts should be equally prioritized, says retirement expert Chris Orestis at Retirement Genius. “Any opportunity to save pretax dollars should always be maximized. Look at an HSA and 401(k) as chocolate and peanut butter; two great tastes that taste great together,” says Orestis.

In terms of prioritizing the funding of a 401(k) versus an HSA, Ray says a good rule of thumb is to first take advantage of any 401(k) employer match, since that’s an instant benefit. “Next, if you qualify for an HSA and can pay for medical expenses without using the account, the HSA is a smart place to save because it helps with both current and future healthcare costs. After that, you can put more into your 401(k) to keep building retirement savings. The best approach depends on your cash flow and whether your job offers a match,” says Ray.

Blattner also recommends starting with employer matches on a 401(k) to maximize contributions. “One scenario where the 401(k) may have an advantage is for someone planning to retire or leave their employer between ages 55 and 59.5. If you leave an employer in or after the year you turn 55, you may be able to take penalty-free withdrawals from that employer’s plan, but income taxes would still apply,” says Blattner.  

Both HSAs and 401(k)s can be funded with pretax money and can grow tax-advantaged. “HSAs are often called triple-tax-free. The extra tax benefit compared to a 401(k) applies to distributions. Distributions for qualified medical expenses may be tax-free, whereas withdrawals from 401(k)s funded with pretax money are considered ordinary income,” says Blattner.

Other things to know about HSAs

“Reimbursement gestures are the most important thing to understand about HSAs. There is no time limit or annual reimbursement maximum for your medical expenses. The key is to save your receipts to prove your tax-free status to the IRS which means you can pay for your medical costs with personal funds, then compound your HSA dollars, wait out a market downturn and reimburse yourself when it is most profitable for you,” says Maginn.

When used wisely, an HSA can be a long-term asset. “Your money rolls over each year and you keep the account even if you switch jobs. To get the most benefits, make sure you use the money for qualified medical expenses, know the eligibility rules and keep good records. This helps you avoid unnecessary taxes and penalties,” says Ray.

Ultimately, Robertson says an HSA gives people confidence and peace of mind by bringing predictability to healthcare costs. “Your balance is always yours, it grows tax-free and you can use it whenever qualified medical expenses arise,” says Robertson.