In this post, we cover:
- The triple tax structure of an HSA and how it compares to other accounts
- How HSA funds can be invested for potential long-term growth
- How unused balances carry over from year to year
- A reimbursement approach worth discussing with your advisor
- How HSA withdrawals are treated after age 65
Health Savings Accounts are one of the most underused tools in long-term financial planning. Most people open one to cover a copay or offset a high deductible. But when used strategically, an HSA may function as one of the most tax-efficient vehicles available to eligible individuals, particularly heading into retirement.
Here are five things worth understanding before you assume you already know how your HSA works.
1. The Triple Tax Advantage Is Real, and Rare
Very few accounts offer a triple tax benefit. With an HSA, contributions go in pre-tax, the money grows tax-deferred, and qualified withdrawals are tax-free. That combination does not exist in a traditional IRA or a 401(k). It does not exist in a Roth either, which is tax-free on the back end but funded with after-tax dollars. The HSA is in a category of its own among commonly used tax-advantaged accounts.
The catch is that you must be enrolled in a High Deductible Health Plan (HDHP) to contribute. For 2026, the IRS defines an HDHP as a plan with a minimum deductible of $1,700 for individuals or $3,400 for families.¹ If your current health plan qualifies, contributing to an HSA may be appropriate within your broader financial strategy, not just a way to cover small medical expenses.
2. You Can Invest Your HSA Balance
Most people leave their HSA funds sitting in cash. That is a missed opportunity.
Once your balance exceeds a certain threshold, typically set by your HSA administrator, you can invest those funds in mutual funds or other available investment options, similar to how you would invest inside a 401(k). That invested balance has the potential to grow subject to market risk, over years or decades, tax-deferred, and be used tax-free for qualified medical expenses later in life.
Health care is one of the largest costs people face in retirement. Fidelity estimates that a single person retiring at 65 may need approximately $172,500 to cover health care expenses throughout retirement, and roughly $345,000 for a couple.² An HSA that has been invested and allowed to grow over time can be a meaningful part of how you prepare for that reality.
3. There Is No Use-It-or-Lose-It Rule
This is one of the most common misunderstandings. HSAs are not Flexible Spending Accounts. FSAs do have annual rollover limits and forfeiture rules. HSAs do not. Your balance carries over year after year with no deadline and no forfeiture. There is no pressure to spend it down before December 31.
This makes the HSA particularly well-suited as a long-term savings vehicle. You can contribute for years, pay current medical expenses out of pocket if your cash flow allows, and preserve the HSA balance to grow untouched.
4. You Can Reimburse Yourself Years Later
The IRS does not require you to reimburse yourself for a qualified medical expense in the same year it occurs. As long as the expense was incurred after your HSA was established, you can reimburse yourself for it at any point in the future.
This means you can pay a medical bill out of pocket today, keep the receipt, and withdraw that equivalent amount from your HSA five or ten years from now, tax-free. Some people use this approach to let their HSA grow while building a record of unreimbursed qualified expenses over time. Organized recordkeeping is essential if you use this strategy.
5. After Age 65, It Functions Like a Traditional IRA for Non-Medical Expenses
Before age 65, withdrawing HSA funds for non-qualified expenses triggers income tax plus a 20 percent penalty. After age 65, the penalty disappears. You will still owe income tax on non-medical withdrawals, the same as a traditional IRA distribution, but there is no additional penalty.
This means that if you arrive at retirement with a well-funded HSA and your medical expenses are lower than expected, the account still has value. You can use it for any purpose without penalty. Combined with the option to use it tax-free for qualified health expenses, the HSA becomes a flexible retirement asset with more than one path forward.
An HSA is one of those accounts that rewards people who plan ahead. The tax advantages are significant, the flexibility is often underrated, and the long-term potential is frequently overlooked. But like most financial tools, how useful it is depends on your individual situation and how it fits within your broader financial plan.
If you have questions about whether an HSA makes sense for your situation or how to incorporate it into your financial plan, we are here to help you think it through.
Sources
1. Internal Revenue Service, Revenue Procedure 2025-19, Section 2.01(2) “High deductible health plan,” which provides the 2026 inflation-adjusted amounts for Health Savings Accounts (HSAs) pursuant to § 223 of the Internal Revenue Code.
2. Fidelity Investments, 2025 Retiree Health Care Cost Estimate (July 30, 2025). Estimate assumes enrollment in Original Medicare (Parts A and B) and Medicare Part D and includes premiums, co-payments, and out-of-pocket costs. Does not include long-term care expenses.
Disclosures
This content is for educational purposes only and does not constitute financial, tax, or legal advice. Because the administration of an HSA is a taxpayer’s responsibility, you are strongly encouraged to consult your tax advisor and review information available on the Internal Revenue Service website at IRS.gov. If you use your HSA money on something other than qualified medical expenses, your withdrawal may be subject to income taxes, and it may be subject to a 20% tax penalty if taken prior to age 65.
Investing involves risk and the potential to lose principal. Please consult a qualified professional regarding your specific situation.