Turborift

Home
Personal Finance
Insurance
Health Insurance
Health Savings Accounts

How to Use Your Health Savings Account in Retirement

Strategic saving and investing of HSA funds during your working years can unlock the full potential of these accounts to cover healthcare costs and more in retirement.

By Donna LeValley published 14 January 2026 in Features

When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works.

(Image credit: Getty Images) Share Share by:

Copy link
Facebook
X

Share this article Print Join the conversation Follow us Add us as a preferred source on Google Newsletter Subscribe to our newsletter

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

3 bundles of US $100 bills of various size standing vertically in ascending order, on blue and white patterned surface

(Image credit: Getty Images)

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

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

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?

es text in neon style - stock photo

(Image credit: Getty Images)

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:

Swipe to scroll horizontally

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 limit40 or less $500More than 40 but not more than 50 $930More than 50 but not more than 60 $1,860More than 60 but not more than 70 $4,960More than 70 $6,200

Pay out-of-pocket now, reimburse yourself later

Front view of wallet holding paper currency, ideal for banking or finance themes

(Image credit: Getty Images)

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

the number 65 on clothespins hanging on a line

(Image credit: Getty Images)

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"

Don'ts. Origami style speech bubble banner. Sticker design template with Outlet text. Vector EPS 10. Flat style. Isolated on white background. Vector illustration

(Image credit: Getty Images)

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

Warning sign with yellow and black triangle with exclamation mark, on blue background. Danger, risk, caution, attention, road sign and care concept.

(Image credit: Getty Images)

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.

Get expert financial strategies and lifestyle insights delivered to your inbox every Monday and Thursday. Subscribe to our free newsletter, Retirement Tips.

View Deal

How Your HSA Can Reimburse You for Medicare Premiums and Expenses
Boost Your HSA Savings with These Smart and Savvy Moves
Five Smart Moves for Retirement Health Care: Maximize Your HSA and Medigap Savings

Get Kiplinger Today newsletter — freeContact me with news and offers from other Future brandsReceive email from us on behalf of our trusted partners or sponsorsBy submitting your information you agree to the Terms & Conditions and Privacy Policy and are aged 16 or over.

Donna LeValleyRetirement Writer

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.