Health Savings Accounts have big tax advantages built in, but are you getting the most out of those benefits? That humble HSA in your company’s benefits package could be one of the most powerful tax-advantaged tools in your arsenal when it comes to retirement planning.
“It's a medical 401(k) with better tax treatment,” explains Jill Garvey, a Wealth Strategist at Huntington, “to create a tax-advantaged fund for medical expenses in retirement.”
Once you grasp the power of the HSA triple play, you'll never look at your health savings account the same way again.
The triple play breakdown
The HSA’s tax advantage comes from three long-term moves that can transform your financial future.
First play: Tax-deductible contributions
When you contribute to your HSA, you get an immediate benefit in terms of taxable income, just like you would see from a 401(k) contribution. “You get a pre-tax deduction for what you’re putting in,” Garvey says, meaning that in 2025, you can reduce your taxable income by up to $4,300 for individuals or $8,550 for families. And if you’re 55 or older, you can add another $1,000 as a catch-up contribution. Everything put into your HSA reduces your taxable income dollar for dollar.
Second play: Tax-deferred growth
Unlike your regular investment accounts, your HSA investments grow completely free from taxes on dividends, interest and capital gains. That means more money compounding for your future. But it’s important to elect those investment options rather than leaving those dollars in cash. “You should invest in the options that are available to you,” Garvey explains, “to make sure it grows tax-deferred.”
Third play: Tax-free qualified withdrawals
The final step is what really sets the HSA apart from other financial tools: When you withdraw money for qualified medical expenses, you pay zero taxes. “If you take it out for qualified medical expenses, it’s tax-free. So that’s the triple tax play,” Garvey says.
The strategic mindset shift
Here’s the game-changer most people miss: You don’t have to use your HSA money immediately. In fact, you shouldn’t.
“If I’m a healthy person,” Garvey says, “and I just have routine copays and deductibles, the best practice is to pay for those with after-tax dollars and invest the HSA dollars.” This isn’t about being penny-wise and pound-foolish — it’s about thinking strategically to maximize the compounding power of the amount in the HSA.
However, you will need to save all documentation for the future. “You can reimburse yourself from the HSA. Just keep the receipts,” Garvey says. And there’s no time limit on this reimbursement, meaning you could pay out of pocket today and reimburse yourself decades later, after your investments have grown substantially.
This approach works best for healthy individuals who can afford to pay current medical expenses without touching their HSA. “If there’s someone who has a lot of existing medical expenses, a high-deductible health plan with an HSA may not be the best option for them,” Garvey cautions.
The key is understanding your health status and running the numbers. If you’re generally healthy and have adequate income to cover routine medical costs, the HSA becomes a powerful wealth-building tool.
The retirement healthcare reality
So why go to all the trouble? The answer is simple: Because healthcare in retirement is expensive. Really expensive. According to Fidelity Benefits Consulting, the average couple may spend as much as $350,000 on healthcare costs in retirement, and that doesn’t even include long-term care expenses.
“You have a pool of money that you can use for qualified medical expenses when you’re retired and you aren’t being subsidized by a corporation,” Garvey notes. “That corporate health insurance safety net disappears in retirement, making your HSA fund crucial.”
Breaking through the education gap
So why isn’t everyone doing this? It’s largely an education issue. Many people learn about HSAs in the context of annual expense management, similar to flexible spending accounts, or FSAs.
“I oftentimes find myself playing the role of the financial coach saying, ‘how are you using your HSA?’ ‘Oh, I’m draining it every year.’ No, that’s not what I want you to do,” Garvey says. When she explains the long-term strategy, the response is universal: Immediate buy-in and a new convert to the HSA triple play approach.
The difference is profound. Instead of thinking year-to-year, you’re building a dedicated healthcare fund that could grow for decades.
Think big picture for retirement
The HSA triple tax play isn’t just about healthcare planning, it’s also retirement planning. By maximizing contributions, investing wisely and thinking long-term, you’re creating a tax-free pool of money specifically designed for one of retirement’s biggest expenses.
“If you start early enough and you contribute through the date you retire, you can really get a lot of dollars in there,” Garvey emphasizes. The key is starting now and shifting your mindset from short-term expense management to long-term wealth building.
Your future self — and your retirement healthcare costs — will thank you.
