3 HSA Benefits You Don't Want to Miss Out On in Retirement

A health savings account (HSA) offers a triple tax advantage when you save and invest money for your healthcare. Your contributions are made pretax. Your money grows tax-free. And as long as you use the money for healthcare, your distributions are tax-free as well.

You can take your HSA money with you when you leave your employer. And if you don’t need the money earlier, you can use it for both medical and nonmedical purposes when you retire.

Here are three ways you can use your HSA funds in retirement.

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1. Take penalty-free withdrawals for any reason

When you withdraw money from a health savings account before age 65 for reasons that aren’t related to healthcare, you’ll pay a steep 20% penalty, plus income taxes on the distribution. But once you’re 65, you can take that money for any reason penalty-free, though you will owe income taxes on your withdrawals.

Of course, it’s important to prioritize your health, so you should take distributions from your HSA as needed to pay for your medical care. Also, you’ll maximize the tax advantages if you use that money for healthcare costs. Considering that Fidelity estimates a 65-year-old couple who retired at age 65 can expect to pay $315,000 out of pocket for health expenses in retirement, you may be better off saving that money for healthcare in your later years and maximizing the tax advantages.

But if you’re relatively healthy, an HSA can be a nice supplement to your retirement savings. Or if you retire before age 65, which is when most people become eligible for Medicare, you can use your HSA for health expenses to bridge the gap between employer-covered insurance and Medicare.

2. Pay for long-term care insurance

About 7 in 10 people ages 65 and older will need long-term care at some point — and the costs are staggering. Genworth‘s 2021 Cost of Care Study estimated that the median cost of a semiprivate room in a nursing home in the U.S. is nearly $95,000 a year.

Using an HSA to pay premiums on a tax-qualified long-term-care policy can make these costs more manageable. However, the IRS limits the amount of tax-free withdrawals you can make based on your age, as seen in the chart. 

Age at the End of 2023 Tax Year Maximum Reimbursable Amount
40 or younger $480
41 to 50 $890
51 to 60 $1,790
61 to 70 $4,770

71 and older


Data source: Internal Revenue Service.

Though you’ll pay lower premiums if you purchase the policy at a younger age, you don’t want to buy a policy too early because you’ll have more years of paying premiums. Typically, between ages 50 and 65 is considered the best time to buy long-term-care insurance. 

3. Pay Medicare premiums

You can use your HSA to pay for your Medicare Part B and Part D prescription drug premiums. However, an HSA can’t be used for Medicare Supplemental Insurance (Medigap) policies. If you have your premiums deducted automatically from your Social Security check, you can use your HSA to reimburse yourself. If you’re 65 or older and still covered by an employer’s health plan, you can use your HSA to pay for your share of expenses. 

Should I contribute to an HSA?

To contribute to an HSA, you need a high-deductible health plan. In 2023, that’s defined as a plan with a minimum deductible of $1,500 for individuals and $3,000 for families. If your plan qualifies, saving and investing money in an HSA is a great option to lock in tax advantages while setting aside money for healthcare.

However, because of the higher out-of-pocket costs, high-deductible health plans typically aren’t a great option for people with chronic health problems or who are planning for a major medical expense, like a pregnancy, in the near future. If you expect your healthcare costs to be substantial, a lower-deductible policy is typically the better bet.