Is an HSA Considered a Retirement Account?

A Health Savings Account (HSA) is a tax-advantaged savings account for individuals to pay for current and future medical expenses. Paired with a specific type of health insurance plan, these accounts allow holders to set aside money for costs their insurance may not cover, such as doctor visits, prescriptions, and dental or vision care. The money contributed to an HSA belongs to the account holder and remains in the account year after year, even if they change jobs or health plans.

HSA Eligibility and Contribution Rules

To open and contribute to an HSA, an individual must be enrolled in a High-Deductible Health Plan (HDHP). For 2025, the IRS defines an HDHP as a plan with a minimum annual deductible of $1,650 for self-only coverage or $3,300 for family coverage. These plans also have a maximum annual out-of-pocket limit, which for 2025 cannot exceed $8,300 for self-only coverage or $16,600 for family coverage.

Beyond having HDHP coverage, eligibility requires that you have no other health coverage, are not enrolled in Medicare, and cannot be claimed as a dependent on someone else’s tax return. If these conditions are met, you can contribute to an HSA up to the annual limits set by the IRS. For 2025, the maximum contribution is $4,300 for individuals with self-only HDHP coverage and $8,550 for those with family coverage.

Account holders age 55 or older can contribute an extra $1,000 per year as a “catch-up” contribution. Contributions for a given tax year can be made up until the tax filing deadline, which is usually April 15 of the following year.

Tax Treatment of HSA Funds

A primary benefit of an HSA is its “triple-tax advantage.” First, contributions to an HSA are tax-deductible. Contributions made through an employer’s payroll deduction are pre-tax, lowering your current taxable income. If you contribute with post-tax money, you can deduct the contribution amount on your annual tax return.

Second, the funds held within an HSA grow tax-free, as any interest or investment gains are not subject to federal income tax. Finally, withdrawals from the HSA are tax-free when used for qualified medical expenses. This means you do not pay income tax on the money you take out for eligible healthcare costs, regardless of your age.

Withdrawal Rules for HSA Funds

The rules for withdrawing funds from an HSA depend on the account holder’s age and the purpose of the withdrawal. The primary use is for qualified medical expenses, which are always tax-free and penalty-free and include costs for medical, dental, and vision care. When funds are withdrawn for any other reason, the tax implications change. For individuals under age 65, these non-qualified withdrawals are subject to both ordinary income tax and a 20% penalty.

A shift in the rules occurs once the account holder reaches age 65, as the 20% penalty on non-qualified withdrawals is eliminated. If an individual aged 65 or older withdraws money for non-medical reasons, the distribution is treated as taxable income, similar to a traditional 401(k) or IRA. Withdrawals for qualified medical expenses remain completely tax-free. The IRS provides a broad definition of these expenses in Publication 502.

Integrating an HSA into a Retirement Strategy

The withdrawal rules for individuals over 65 allow an HSA to serve a valuable role in a retirement plan. While not a retirement account by formal definition, it can be used to cover healthcare costs in retirement, thereby preserving other retirement funds for daily living expenses. In retirement, HSA funds can be used tax-free to pay for a variety of healthcare costs not covered by Medicare. This includes premiums for Medicare Part B, Part D, and Medicare Advantage plans.

Using tax-free HSA dollars for these recurring premiums can result in substantial savings compared to paying with taxable withdrawals from a traditional IRA or 401(k). HSA funds can also be used to pay for qualified long-term care insurance premiums, up to certain age-based limits set by the IRS. By earmarking the HSA for these healthcare expenditures in retirement, individuals can more effectively allocate their other savings for housing, travel, and other non-medical costs.