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Investing Retirement

How to use your HSA as an extra retirement account

  • 5-min read

Once you get the first hospital bill after having a baby or getting an arrow removed from your leg from a LARPing incident, you’ll be happy you set the money aside.

A person asks “Have I ever had an adverse reaction to a medical procedure,” and another answers, “Yeah, when you get the bill.”

The most boring literature in existence is health insurance benefit guides. It makes sense. The more sleep you get, the healthier you are (assuming you wake up). Buried in all that drudgery are Health Savings Accounts (HSAs), the only way to get a triple-tax benefit—legally—and potentially use those savings in retirement. 

How do HSAs work and how do you qualify? We’ll discuss that and more below.  

What is an HSA and who can have one?

An HSA is a triple-tax-advantaged account that is available for people with high-deductible health plans (HDHPs). In 2022, that means your health insurance plan needs to have a deductible of at least $1,400 (or $2,800 for family coverage).

To qualify, the retirement HSA rules state that you’ll need to:

  • Have an HDHP.
  • Not be on Medicare or have any other type of health coverage in addition to the HDHP.
  • Not be claimed as a dependent on someone else’s tax return.

Funds in the account can be withdrawn for qualified medical expenses at any time. The list of qualified items is surprisingly long, and there’s even a website that only sells HSA-eligible items. Amazon addicts, like me, can rejoice in its HSA section.

Tip: Insurance premiums don’t qualify as qualified medical expenses unless it is for additional health coverage, such as Medicare or long-term care insurance. Read more here.

What are the tax benefits of an HSA?

HSAs have a triple tax benefit; it’s like having a medical Roth IRA but making Traditional IRA contributions.  Here’s the 1-2-3:

  1. Contributions to the account are made pre-tax.
  2. Investment earnings in the account aren’t taxed.
  3. Qualified distributions aren’t taxed. 

The IRA comparison is apt because an HSA after retirement—age 65 in this case—effectively becomes a traditional IRA. 

A person crouches down and turns into a tucan.
LeRoy Patterson

Once you turn 65, you can withdraw funds from the account for any use and not pay any penalty (though you will have to pay income taxes on the distribution if it’s not used for qualified medical expenses). Prior to age 65, distributions that aren’t qualified come with a 20% penalty in addition to the income tax. Oof.

Advantages of an HSA

The HSA was designed to help save for big medical expenses, so it has plenty of advantages.

Triple tax benefit

The most obvious benefit is the tax savings. If you earn between $165,000 and $209,000 per year, it’s as if you’re saving around 32% on medical expenses that you pay with an HSA. 

You might be thinking, I’m young. Why even bother worrying about retirement or medical expenses?

Once you get the first hospital bill after having a baby or getting an arrow removed from your leg from a LARPing incident, you’ll be happy you set the money aside. Plus, you’ll be happy every year looking at your tax return and seeing how much money Uncle Sam didn’t take straight out of your paycheck. 


Other types of healthcare accounts (like some flex spending accounts) have a use-it-or-lose-it rule. Knowing that your savings will continue to compound—and not vanish like Loki into the multiverse—and act as another backstop for retirement is a huge plus. 


Most healthy, young people should have high-deductible plans. While you’re young and don’t have a lot of transactional medical expenses, it makes sense to keep your deductible high and premium low. If something catastrophic happens, the health insurance company will eventually take over expenses, and you can change plans if you need to at your next life event or during the annual period.

Disadvantages of an HSA


You can’t access an HSA without having a high-deductible plan. Many couples change their plan in the year of a planned pregnancy or when undergoing fertility treatments. And many people with chronic illnesses, such as type 1 diabetes, will have so many medical expenses their whole lives that it will never make sense to use a high-deductible plan. 

Contribution Limits

In 2022, annual contributions are limited to $3,650 for individuals and $7,300 for family coverage. Although annual contributions over $3,650 can compound to a large amount over time, it’s not a lot if you end up having necessary medical expenses in the near future. 

Your best bet may be to diversify your health care savings: Have an HSA and an FSA, and max out a Roth in case you ever need to use it as well.


You may luck out with a good provider, but HSA providers are famous for poor service. Requests for reimbursements take months, and the debit cards they provide often don’t work. Do research on the provider your employer uses and don’t be afraid to go out on your own with an outside institution. 

Open an HSA today (or during your next open enrollment)

Managing your financial life doesn’t need to be hard. Save and invest young, educate yourself on your options, and don’t buy more than 12 or 13 lottery tickets per year. Using HSAs is a great way to save money you probably won’t miss—maxing out an HSA amounts to about $70 per week—and protect yourself in case of calamity…or if you can’t quite afford the fourth cruise in a year during retirement.