Using a health savings account in retirement

A health savings account is the only account in the tax code that can be tax-free three times. Contributions are deductible or come out of pay before tax. Growth isn't taxed. Withdrawals for qualified medical expenses are tax-free.

That makes an HSA one of the most efficient ways to save for retirement healthcare, which is one of retirement's largest costs. This guide covers how to fill one, when you must stop, and how to spend it well.

Who can contribute

You can contribute to an HSA in any month you're covered by an HSA-eligible high-deductible health plan and have no other disqualifying coverage. Enrolling in any part of Medicare ends your eligibility to contribute.

2026 contribution limits:

The catch-up amount is fixed in the law and isn't adjusted for inflation. It belongs to each eligible person, so a spouse who is 55 or older needs an HSA in their own name to use it.

Contributing through payroll, if your employer offers it, also avoids Social Security and Medicare taxes. Contributing on your own saves income tax but not those payroll taxes.

The Medicare cutoff

Contributions must stop once Medicare coverage begins. Two timing details matter:

• Social Security can enroll you automatically. If you claim Social Security at 65 or later, you're usually enrolled in Medicare Part A at the same time.
• Part A can start before you apply. If you sign up for Medicare after 65, Part A coverage is often backdated by several months. Stop HSA contributions early enough to avoid excess contributions.

The app assumes HSA contributions stop at 65.

Spending from an HSA

After 65 an HSA works much like a traditional IRA for non-medical spending, with one advantage: medical spending stays tax-free. Qualified expenses include many costs retirees face, such as Medicare premiums other than supplemental (Medigap) policies, deductibles, dental and vision care.

You can reimburse yourself later

Qualified expenses don't have to be reimbursed in the year you pay them. If you keep receipts, you can pay medical bills from other money now and reimburse yourself from the HSA years later, tax-free. The expense must come after you opened the HSA.

This lets the account grow untouched for longer. It also gives you a store of tax-free withdrawals you can use in any year, for any purpose, up to your saved receipts.

A worked example

Nadia and Luis are 57 and 55 and have family coverage through Nadia's employer. In 2026 they can contribute $8,750 as a family. Each of them is 55 or older, so each can add a $1,000 catch-up in their own HSA. That's $10,750 a year.

They pay current medical bills from their checking account and keep the receipts. By the time Nadia turns 65, they've saved for eight years and invested the balance. Suppose it's grown to $110,000.

In retirement, they use the HSA to pay Medicare premiums and out-of-pocket costs of about $6,000 a year. Each of those dollars is tax-free.

Compare paying the same $6,000 from a traditional IRA in the 22% bracket. They'd need to withdraw about $7,692 to have $6,000 left after federal tax. Over 15 years, that's about $25,000 of federal tax avoided, before state tax and investment growth.

Where an HSA fits in your withdrawal order

Because medical spending from an HSA is never taxed, the account is usually most valuable spent last, on healthcare. That's the app's default: it draws on your HSA after your other accounts, and treats HSA withdrawals as tax-free up to that year's healthcare spending.

There are reasons to spend it sooner:

• Large medical costs early in retirement. Using HSA money for them avoids taxable withdrawals elsewhere.
• Income-sensitive years. HSA withdrawals for medical costs don't add to income, so they can help you stay under an IRMAA tier or the ACA subsidy cliff. See IRMAA and ACA cliffs.
• Heirs. A spouse who inherits an HSA can treat it as their own. Other heirs generally owe income tax on the full balance in the year they inherit it. If your HSA is likely to pass to children, spending it during your lifetime is usually more efficient.

Investing an HSA

Many HSAs hold cash by default. If you don't plan to spend the money for years, you can usually invest it in funds like any other retirement account. Count your HSA in your asset allocation. Its tax-free growth makes it a good place for assets you expect to grow the most. See asset allocation targets.

Common mistakes

• Leaving the balance in cash for decades. Money you won't spend for years can usually be invested.
• Losing the receipts. Without them, you can't prove a later reimbursement was for a qualified expense. A folder of scanned receipts is enough.
• Contributing after Medicare starts. Contributions for months you're enrolled in Medicare are excess contributions, which you'll need to withdraw.
• Forgetting the beneficiary form. Name your spouse if you're married, so the account can pass as their own HSA.

Frequently asked questions

Can I contribute after I retire?

Yes, if you're still covered by an HSA-eligible plan and aren't enrolled in Medicare. Many early retirees keep contributing while on a qualifying marketplace plan.

What if I withdraw for non-medical costs before 65?

You'll owe income tax plus the 20% penalty, unless you're disabled. That's steeper than the early-withdrawal penalty on IRAs.

Do HSA limits change every year?

Yes. Self-only and family limits are adjusted for inflation each year. The 55-and-older catch-up stays at $1,000.