11/03/2026
The Health Savings Account (HSA)may be the most underused retirement tool in the American tax code.
Most workers who have access to an HSA think of it exclusively as a healthcare account, or a place to pay for current medical expenses with pre-tax dollars. That's accurate, but it dramatically underappreciates what the account is capable of.
For workers who can afford to pay current medical expenses out of pocket, the HSA can function as a stealth retirement account with a rare triple tax advantage:
- Contributions are tax-deductible
- Growth inside the account is tax-free
- Qualified withdrawals for medical expenses are tax-free
No other account in the tax code offers all three at once. Traditional 401(k)s and IRAs get the first two, but tax withdrawals as ordinary income. Roth accounts get the last two but require after-tax contributions.
The catch is that HSA withdrawals must be used to pay for qualified medical expenses to receive the tax-free treatment. But retirees consistently underestimate how large their lifetime healthcare costs will be.
Fidelity's 2025 estimate puts the number at $172,500 for a single 65-year-old retiree and $345,000 for the average retired couple. Remarkably, that figure doesn't even include long-term care. Medicare premiums, supplemental insurance, dental, vision, hearing, and long-term care needs all add up over a multi-decade retirement.
For workers with the discipline to leave HSA contributions invested for decades rather than spending them each year, the account can become one of the more powerful vehicles in the entire tax code. And the tax-free withdrawals in retirement don't count toward the calculations that increase Social Security taxation or Medicare premium surcharges, which is the same benefit Roth accounts provide.
I've found that HSAs are consistently underappreciated by workers who could benefit most from them. So, if you're eligible and haven't given the account's long-term potential much thought, it may be worth revisiting.
