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How HSAs Are Even Better Retirement Accounts Than IRAs

Written by: PeopleKeep Team
December 12, 2016 at 12:00 PM

With pensions being quickly phased out and the future of social security How HSAs are Even Better Retirement Accounts Than IRAsincreasingly uncertain, concerns about retirement savings are rising. Many Americans start saving too late, and do they do not know how much they should save. According to the National Institute on Retirement Security (NIRS), “the average working household has virtually no retirement savings.”

With the rising popularity of high-deductible health plans (HDHPs), health savings accounts (HSAs) have also become more prevalent. Most people don’t think of HSAs as a way to save for retirement, but they are actually IRAs (individual retirement accounts) but better—and they can help you live more comfortably in your golden years.

Using HSAs as Retirement Accounts

HSAs combine the benefits of traditional retirement accounts, like IRAs and 401(k)s, with those of medical expense accounts at a time in life when your income is fixed but you might have a higher need for medical care.

One of the biggest ways HSAs outperform traditional retirement accounts is through their tax-advantaged status. While contributions to both IRAs and 401(k)s are taxed –  either when funds are deposited into the account or when they are withdrawn –  contributions made to HSAs are tax-free all the way through. That means as long as you use your HSA money on qualified medical expenses, you can deposit pre-tax dollars into your HSA and then withdraw funds in order to pay for those expenses tax-free. Some exceptions exist in state laws, however, and you should check with your accountant to see if any apply to you.

Another advantage of the HSA is that the account never expires. Users get to keep their HSAs forever (even if they switch health plans), which means that retirees can use their HSAs to cover medical expenses incurred at any point after the account is opened, while saving their IRAs for living expenses.

Longer Life Expectancy

In 2012, the average life expectancy in the United States hit an all-time high at nearly 79 years (78.74 to be exact). This number has steadily increased (with bumps along the way) since the 1960s when it was 69.77, and it is expected to continue rising. Of course, this means that people are living longer after they retire—presenting the need to save more than their parents did, and HSAs are an excellent way to do so.

Higher Medical Expenses

It shouldn’t come as any surprise that the rising cost of healthcare doesn’t stop with premiums. Copays, coinsurance, and deductibles are all rising, which means that your out-of-pocket contributions increase with them. Since most people in retirement are living on a fixed income, unexpected medical bills can cause extra stress and sometimes feel impossible to pay—and this is where HSAs come in handy.

HSAs do not expire because they are real savings accounts. Therefore, money you saved in your 30s will still be available in your 70s when you might need it most—tax-free.

And because HSAs can reimburse any expense incurred after the account was opened, you have the freedom to simply save your receipts from any qualified medical expense and then pay yourself back for those expenses years later, when the principal in the HSA account has grown.


HSAs are a great way to bridge the gap between retirement dreams and medical bills that pop up when you least expect it. HSAs allow you to save your IRA or 401(k) for their intended purposes (living expenses, travel, entertainment) while alleviating concern about how you will pay for medical treatment.

The Comprehensive Guide to the Small Business HRA

What questions do you still have about how HSAs can help you save for retirement? Let us know in the comments below.

Topics: HSA, Retirement

Additional Resources

Trying to decide which HRA is best for you? Take our quiz to find out.
Get our guide on how to offer health benefits with a small budget.