Many of our super-saver clients come into our office wondering what more they can do to build up their nest egg for retirement. After maxing out Roth IRA contributions and 401(k)'s, they often believe they’ve saved as much as they can in traditional accounts. But have they?
Many people don’t realize that their health benefits may provide them with another avenue for retirement: A Health Savings Account (HSA). While an HSA may seem like just another savings account to use for medical expenses, the truth is that it is a highly underutilized savings vehicle that can help minimize taxes and cover out-of-pocket medical expenses today or be used as an extra retirement account in the future.
An HSA is a savings account available to those on a high-deductible health plan (HDHP) who can put aside money to cover qualified medical expenses without paying out of pocket. If you use an HSA for anything other than a qualified medical expense, you’ll pay a 20% tax penalty. Once you hit age 65, this penalty no longer applies to you, and you can use an HSA as a regular retirement account similar to an IRA. Using your HSA for anything other than qualified medical expenses after age 65 is still taxed as income, but you can use the fund as you wish without worrying about any other penalties.
Many corporate professionals have a Flexible Spending Account through their company’s medical benefits.
If you have an FSA, you can contribute to the FSA from your paychecks each year; however, if you don’t use the entirety of the FSA, you forfeit them at year-end.
An HSA is an ongoing savings account where the funds roll over year-to-year and can be used for future medical expenses. HSA funds can also be used for medical expenses from previous years as long as those expenses were incurred while you were covered by an HDHP. Also, the money you save in an HSA can be invested and grow tax-free.
A Health Savings Account (HSA) is a great way to pay for medical expenses with tax-free money. But there are a few rules as to how an HSA works:
Every year, the IRS sets the contribution limits an individual or family can put into a health savings account. In 2025, individuals can contribute $4,300 to their HSA, while families can contribute $8,550. The catch-up contribution hasn’t changed since 2024, meaning that those age 55 and older can contribute an extra $1,000 to their HSA, or $2,000 if they have a spouse, for a total of $5,300 and $10,550, respectively.
An HSA is helpful as a retirement fund because it is “triple tax-advantaged.” What does this mean? An HSA is incredibly tax-efficient for tax-deductible contributions, tax-deferred growth, and tax-free withdrawals.
If you make your contributions directly to your HSA account, you can write them off as deductions on your federal tax return for the year of your contributions.
Your HSA’s growth is tax-deferred, meaning that when you make contributions and invest them, you do not have to pay taxes on any of the growth in the account.
If your withdrawals are for a qualified medical expense, like a deductible, copay, prescription, etc., you do not have to pay taxes. And once you reach age 65, any tax penalty other than an ordinary income tax is removed, meaning you can use your HSA funds for anything without suffering a 20% penalty.
An HSA is an incredibly tax-efficient investment vehicle because of its tax-deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses. It can be especially advantageous to invest in early because, for retirees after age 65, it can be used for both retirement and medical expenses, which tend to increase with age.
A successful retirement requires more than just savings strategies, though. You also need the right tax strategies to ensure you aren’t paying more taxes than you need to. At Willis Johnson and Associates, we work with you to optimize your finances and avoid leaving any money on the table. If you're seeking peace of mind for your finances, contact our team for a free consultation with an advisor.