How to Use Your Health Savings Account in Retirement

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A Health Savings Account (HSA) is often viewed as a tool for current medical expenses, but its "triple-tax advantage" makes it one of the most powerful and flexible retirement savings vehicles available. By strategically saving and investing your HSA funds during your working years, you can unlock the full potential of these accounts to cover health care costs and even supplement your income in retirement.

After age 65, the account can even serve as a supplemental income source. At that point, the 20% penalty for non-qualified medical withdrawals disappears, leaving the funds subject only to standard income tax — similar to a traditional IRA or 401(k).

The triple-tax advantage

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The core strength of the HSA lies in its three layers of tax benefits:

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Tax-deductible contributions: Money you contribute goes in tax-free or is tax-deductible if you contribute post-tax
Tax-free growth: Your investments and interest grow tax-free
Tax-free withdrawals: Withdrawals are tax-free if used for qualified medical expenses at any age

When you reach retirement, the third benefit becomes even more versatile.

What Can You Spend HSA Funds On in Retirement?

Health care is often the single largest expense for retirees. Your HSA is perfectly designed to meet this need in the most tax-efficient way possible. The ability to reimburse yourself for Medicare premiums, coinsurance, co-payments and deductibles can put a significant sum back into your pocket.

At any age, money withdrawn for qualified medical expenses is completely tax-free and penalty-free. In retirement, this can include:

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Expense	Uses	Qualified Medical Expense?	Limitations on tax treatment of HSA withdrawals
Medicare out-of-pocket costs	Deductibles, copays, and coinsurance under Medicare Parts A and B.	Yes	Tax-free
Medicare premiums	You can use your HSA funds, tax-free, to pay premiums for: • Medicare Part B • Medicare Part D • Medicare Advantage (Part C)	Yes	Tax-free. You generally cannot use HSA funds to pay for Medigap (Medicare Supplemental) premiums.
Other essential medical care (not covered by original Medicare)	Dental care, vision care, hearing aids, and prescriptions not fully covered by Medicare	Yes	Tax-free
Qualified long-term care	Your HSA can cover qualified long-term care services and pay the premiums for a qualified long-term care insurance policy.	Yes	Tax-free. Only up to certain IRS annual age-based limits, see below for 2026 numbers.
Medical travel and lodging	If you require medical treatment far from home, your HSA can cover travel and lodging expenses related to that treatment.	Yes	Tax-free
Home and vehicle modifications	You can tap HSA funds tax-free to purchase necessary modifications to a car, van, or home to accommodate your disabilities.	Yes	Tax-free

Covering long-term care costs

Long-term care expenses often go unplanned, although 56% of people will need long-term care services within their lifetime. The Life Insurance Marketing and Research Association (LIMRA) estimates that only 3% of Americans over 50 have any long-term coverage (LTC). As noted, you can use HSA funds to pay LTC insurance premiums for yourself or your spouse; a portion of that payment is tax-free as a qualified medical expense.

The amount you can withdraw annually that will be treated as qualified medical expenses depends on your age. It is equal to the IRS tax deductible limits for LTC insurance and is indexed for inflation annually.

Limits on HSA reimbursement for long-term care insurance premiums:

Age attained before close of year/2026 annual limit
40 or less $500
More than 40 but not more than 50 $930
More than 50 but not more than 60 $1,860
More than 60 but not more than 70 $4,960
More than 70 $6,200

Pay out-of-pocket now, reimburse yourself later

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One strategy to stretch your HSA is to pay current medical expenses out-of-pocket with non-HSA funds and keep the receipts for reimbursement at a later date.

Because your HSA funds never expire, you can let the balance grow and invest tax-free for decades. Then, in retirement, you can reimburse yourself for those previous, qualified expenses — potentially pulling out a large, tax-free lump sum that can be used for any purpose. Be sure to keep meticulous records of all receipts.

Remember that any expenses incurred before you established your HSA aren’t considered qualified medical expenses and aren't eligible for reimbursement.

An important difference between HSAs and FSAs: Unlike FSA accounts, there is no time limit to request HSA reimbursements. You can pay for qualified medical expenses out of pocket and reimburse yourself days or even decades later. You might not need to submit receipts to your HSA provider to get reimbursed, but keep those receipts for tax purposes.

Favorable rule changes when you reach 65

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Once you reach age 65, your HSA essentially transforms into an even more flexible Traditional IRA or 401(k). At this age, you can take penalty-free withdrawals for any reason.

Before age 65: Withdrawals for non-medical expenses are taxed as ordinary income and subject to a 20% penalty.
At age 65 and older: The 20% penalty disappears. Any withdrawal used for non-medical expenses is treated just like a withdrawal from a traditional 401(k) or IRA: it is taxed as ordinary income, but is penalty-free.

HSA "don’ts"

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1. Don't contribute to your HSA if you're within six months of applying for Medicare

This can be a costly mistake. If you're 65 or older, your Part A coverage will start up to 6 months back from the date you sign up for Medicare or apply for benefits from Social Security. You're not eligible to make contributions to your HSA after you have Medicare. If your Medicare Part A coverage overlaps with when you made contributions, you may have to pay a tax penalty.

2. Don’t use your HSA for Medigap premiums

As Medigap premiums aren’t considered qualified expenses for HSA purposes, they will be subject to income taxes. As you get older, chances are good you’ll have other medical expenses that would be a better use of those funds, because those expenses allow you to take advantage of the HSA's most powerful advantage: tax-free withdrawals to pay medical expenses. And those funds will continue to grow when they remain in the account for use at a later time.

3. Avoid non-qualified withdrawals by obtaining medical necessity documentation

For any non-traditional expense you intend to treat as a qualified medical expense, ensure you have a letter of medical necessity from your provider. For instance, expenses for modifications to your home or vehicle due to a disability or physical limitation.

And keep all your receipts and invoices, especially for any lodging or travel expenses. This documentation can be essential if there are any questions about a claim.

Important considerations for retirees

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Stop contributing when enrolling in Medicare- A critical rule to remember: You cannot contribute to an HSA once you enroll in Medicare (Part A and/or Part B). And, because anyone receiving Social Security is automatically enrolled in Medicare Part A and Part B when they turn 65, it's essential to plan your final contributions carefully. You should stop contributing to your HSA six months before your intended Medicare enrollment date to avoid potential tax penalties.
No required minimum distributions (RMDs)- Unlike traditional retirement accounts, 401(k)s, or traditional IRAs, an HSA is not subject to required minimum distributions (RMDs) at age 73. This allows your money to continue to grow tax-free for your entire life, making it an excellent asset for long-term health planning and estate purposes.
The spouse and beneficiary factor- If your spouse is your beneficiary, the HSA can simply transfer to them upon your death, and they will continue to enjoy the same tax advantages. If a non-spouse is named as the beneficiary, the account typically loses its HSA status and becomes taxable upon transfer.

HSAs offer unique benefits to retirees

The strategic use of an HSA in retirement is financial planning. By maximizing contributions, investing wisely, and carefully documenting your medical receipts, you can ensure that your HSA provides the ultimate financial security — tax-free money for medical expenses and penalty-free flexibility for all other needs after age 65.

Donna joined Kiplinger as a personal finance writer in 2023. She spent more than a decade as the contributing editor of J.K.Lasser's Your Income Tax Guide and edited state specific legal treatises at ALM Media. She has shared her expertise as a guest on Bloomberg, CNN, Fox, NPR, CNBC and many other media outlets around the nation. She is a graduate of Brooklyn Law School and the University at Buffalo.