When most people think about saving for retirement, they think of 401(k)s and Individual Retirement Accounts (IRAs). But there’s another powerful tool that often gets overlooked: the Health Savings Account (HSA).
Yes, HSAs are great for covering everyday medical expenses, but they can also serve as a stealth retirement account. In fact, for some people, HSAs are the most tax-advantaged way to save for retirement.
Here’s how HSAs work like a medical 401(k), and why you should consider using yours that way.
Triple Tax Advantage = Unmatched Retirement Power
HSAs are the only account that offers a triple tax benefit:
- Tax-free contributions pre-tax through payroll or deductible if made directly
- Tax-free investment growth like a 401(k)
- Tax-free withdrawals when used for qualified medical expenses
That means no taxes going in, no taxes while growing, and no taxes coming out—as long as you use the money for health costs.
Compare that to:
- A traditional 401(k): tax-deferred in, taxed when withdrawn
- A Roth IRA: taxed in, tax-free growth and withdrawals
HSAs give you the best of both worlds.
Medical Expenses Are a Major Retirement Cost
According to the Fidelity Retiree Health Care Cost Estimate, the average retired couple in the U.S. will need over $300,000 for healthcare expenses in retirement. That includes:
- Medicare premiums
- Prescription drugs
- Dental, vision, and hearing expenses
- Long-term care
That’s where your HSA can shine. You can use it to pay for all of the above, tax-free.
Use HSA Money Now or Save for Later
Most people use their HSA like a checking account. They contribute, then immediately spend the funds on current medical bills.
But there’s another approach: treat your HSA like a long-term investment account.
Here’s how:
- Pay for current healthcare out-of-pocket (when you can afford to)
- Save your HSA receipts in case you want to reimburse yourself later
- Let your HSA balance grow and compound, invested like a retirement account
- Use it decades later to pay for medical expenses in retirement
BONUS TIP: There’s no deadline to reimburse yourself for qualified expenses. You could pay for a $500 doctor visit this year, let your HSA grow, and reimburse yourself five years later, completely tax-free.
After Age 65: Even More Flexibility
Once you turn 65, you can use your HSA for non-medical expenses, too. At that point, withdrawals for non-medical reasons are taxed like a traditional 401(k)—no penalties, just regular income tax.
That makes an HSA a hybrid retirement account: tax-free for medical use, taxable for anything else.
Why HSAs Belong in Your Retirement Strategy
Whether you’re self-employed, running a small business, or just planning ahead, an HSA can be a powerful piece of your retirement puzzle. In summary, HSA allow you to:
- Save on taxes now and later
- Prepare for healthcare costs in retirement
- Create flexibility around when and how you use retirement funds
- Invest your HSA balance for long-term growth
LegUp Health Can Help
At LegUp Health, we help small businesses and employees choose the right HSA-compatible health plans and understand how to use them to their full potential. Whether you’re looking to save money this year or build long-term financial security, we’ve got you covered.
👉 Want help setting up an HSA strategy that works for retirement? Book a free consultation.
