get matched with fiduciary advisers with this free tool<\/a> from our ad partner SmartAsset.<\/p>\nHow can an HSA be used to save for healthcare \u2014 and retirement? <\/p>\n
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. <\/p>\n
HSAs let you save pretax money for current and future healthcare costs. \u201cContributions, 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,\u201d says Kevin Robertson, chief growth officer at HSA Bank.<\/p>\n
Indeed, HSAs are personally owned, portable and investible accounts that stay with you for life. \u201cThe money is yours, you can save it, invest it and use it when and how you need for qualified healthcare expenses,\u201d says Dr. Steve Neeleman, founder and vice chairman at HealthEquity, the nation\u2019s largest HSA and consumer-directed benefits administrator. So you needn\u2019t just think of them as a place to put healthcare moneys you might need soon. <\/p>\n
To better understand HSAs, it may help to think of it as a healthcare IRA, says Ray. \u201cMake 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,\u201d says Ray.<\/p>\n
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. \u201cWithdrawals 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),\u201d says Blattner. That\u2019s right, after age 65, HSAs allow penalty-free withdrawals for any purpose, subject to ordinary income tax.<\/p>\n
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\u2019t include long-term care expenses, which can add significantly to one\u2019s healthcare costs in retirement.<\/p>\n
How to use an HSA<\/p>\n
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. \u201cSave \u2014 fund it consistently, ideally up to the annual limit which is $8,750 for families and $4,000 for individuals in 2026. Spend \u2014 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\u2019s now permanent telehealth coverage retroactive to Jan. 1, 2025. Invest \u2014 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,\u201d says Neeleman.<\/p>\n
HSAs vs. 401(k)s<\/p>\n
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. \u201cBut 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,\u201d says Ray. Indeed, the rules for taking money out early are also different, so it\u2019s important to treat the accounts differently.<\/p>\n
Both accounts should be equally prioritized, says retirement expert Chris Orestis at Retirement Genius. \u201cAny 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,\u201d says Orestis.<\/p>\n
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\u2019s an instant benefit. \u201cNext, 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,\u201d says Ray.<\/p>\n
Blattner also recommends starting with employer matches on a 401(k) to maximize contributions. \u201cOne 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\u2019s plan, but income taxes would still apply,\u201d says Blattner.\u00a0\u00a0<\/p>\n
Both HSAs and 401(k)s can be funded with pretax money and can grow tax-advantaged. \u201cHSAs 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,\u201d says Blattner.<\/p>\n
Other things to know about HSAs<\/p>\n
\u201cReimbursement 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,\u201d says Maginn.<\/p>\n
When used wisely, an HSA can be a long-term asset. \u201cYour 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,\u201d says Ray.<\/p>\n
Ultimately, Robertson says an HSA gives people confidence and peace of mind by bringing predictability to healthcare costs. \u201cYour balance is always yours, it grows tax-free and you can use it whenever qualified medical expenses arise,\u201d says Robertson.<\/p>\n","protected":false},"excerpt":{"rendered":"Americans are increasingly embracing the health savings account \u2014 a tax-advantaged account for those enrolled in a high-deductible…\n","protected":false},"author":2,"featured_media":316916,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[177],"tags":[79,18,18131,3334,135,88945,19,3912,3442,41557,17,37634,88944,234,235,9436,44285,2895,83893,44289,19363],"class_list":["post-316915","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-eire","tag-financial-services","tag-general-news","tag-health","tag-health-medical-insurance","tag-ie","tag-insurance","tag-investing","tag-investing-securities","tag-ireland","tag-medical-insurance","tag-non-life-insurance","tag-personal-finance","tag-personalfinance","tag-political","tag-political-general-news","tag-retirement-planning","tag-risk-topics","tag-risk-topics-regulations-regulators","tag-securities"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@ie\/116002959055453986","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/316915","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=316915"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/316915\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/316916"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=316915"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=316915"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=316915"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}