Most people know they should save for retirement. Fewer think about saving specifically for health care, even though it is one of the largest expenses in retirement. A health savings account (HSA) is one of the few accounts that offers a tax break on the way in, while the money grows, and on the way out.
Who can open an HSA
You can contribute to an HSA, through your employer or on your own, if you:
- Are covered by an HSA-eligible high-deductible health plan (HDHP). For 2026, the plan’s deductible must be at least $1,700 for self-only coverage or $3,400 for family coverage, and out-of-pocket costs can’t exceed $8,500 or $17,000.
- Don’t have other disqualifying health coverage (dental and vision plans are fine).
- Can’t be claimed as a dependent on someone else’s tax return.
- Are not enrolled in Medicare.
How much you can contribute
- 2026: $4,400 for self-only coverage or $8,750 for family coverage.
- 2027: $4,500 for self-only coverage or $9,000 for family coverage.
- Age 55 or older: an extra $1,000 catch-up contribution.
Employer contributions count toward the limit. There are no income limits, and you have until the tax filing deadline to make contributions for the prior year.
The tax benefits
- Contributions are deductible, or pre-tax if made through payroll.
- Interest and investment growth inside the account are not taxed.
- Withdrawals for qualified medical expenses are tax-free.
Qualified expenses include doctor visits, prescriptions, dental care, and vision care, for you, your spouse, and your dependents. Withdrawals for other purposes are taxable and generally subject to an additional 20% tax. See IRS Publication 969 for the full rules.
Why an HSA can be a retirement account too
Unlike a flexible spending account, an HSA has no use-it-or-lose-it rule. The balance rolls over every year and stays with you if you change jobs. Many HSAs allow you to invest the balance in mutual funds once it passes a certain level.
Once you reach 65, you can withdraw HSA money for any reason without the 20% penalty. Withdrawals for non-medical expenses are taxed as income, like a traditional IRA, while withdrawals for medical expenses remain tax-free. That flexibility makes an HSA a useful way to prepare for health care costs in retirement, which Fidelity estimates at $185,500 for a single 65-year-old retiring in 2026.
One thing to plan for: once you enroll in any part of Medicare, you can no longer contribute to an HSA, although you can keep using the money already in it.
What happens when you die
If your spouse is the beneficiary, the HSA becomes their HSA with the same tax benefits. If anyone else inherits it, the account stops being an HSA and the balance is taxable to that person in the year of your death.
If you have access to an HSA-eligible plan, it is worth talking with your financial advisor about how an HSA fits with your other savings. For more year-end ideas, see Lower Your Tax Bill with Year-End Planning.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
