How to Use an HSA as a Retirement Account (Secret IRA Hack)

Using an HSA (or Health Savings Account) as a retirement account is the most underrated way to save and invest.

One of my goals for this year was to leverage as many different retirement vehicles as possible. We’ve talked about strategies for maxing out traditional retirement accounts, but have you heard of a health savings account, or HSA? An HSA is now one of my top strategies for saving for retirement, and it should be a top priority for you, too.

An HSA is a special account designed to help people save for health care expenses. However, it can also function as a “secret” IRA and allow you to save more for a tax-free retirement. It’s important to remember that HSA accounts aren’t technically retirement accounts like an IRA, but the rules associated with the account make them a great tool for savers who qualify for them.

Let me show you why I believe an HSA is your secret retirement weapon and how I use it as my “secret” IRA.

Don’t forget to check out the best HSA account providers here >>

How do HSAs work?

Health savings accounts came into existence in their current form in the early 2000s When President Bush expanded Medicare. The big premise of HSAs is that they’re tied to having a deductible health care plan, but they allow for a lot of benefits that flexible spending accounts don’t.

In order to be able to contribute to an HSA, your health plan must meet certain high-deductible health plan (HDHP) deductible limits. In 2025, these limits are:

Minimum – maximum discounts:

Individual: $1,650 – $8,300
Family: $3,300 – $16,600

If your plan meets these deductible limits (which your employer will likely confirm with you during open enrollment), you can contribute pre-tax funds to your HSA.

For 2025, the maximum HSA contribution is:

Individual: $4,300

Family: $8,550

You can check next year’s HSA contribution limits here.

It is important to note that this contribution limit includes:Employer and employee contributions. Therefore, if your employer will contribute on your behalf, you need to adjust your paycheck withholding appropriately.

So, now that your money is in this account, what now? This is where the real fun begins. Just like a flexible spending account, you can withdraw funds at any time for medical expenses. The money in your HSA account rolls over from year to year, and if you leave your employer, you can take your money with you. Remember, it’s your HSA, just like an IRA or 401k will be your money too.

The great advantage of an HSA is that you can invest money within the account. However, it is important to check with your plan administrator. Each plan varies widely (which is disappointing), but in general you can choose funds similar to your 401k within your HSA. Some HSA accounts require that you always hold a minimum cash amount (such as $2,000) before you can invest, but once you reach that limit, you can invest in the funds offered.

Triple Tax Benefits of HSAs (and More)

What makes HSAs a great “secret” IRA is that you get a triple tax benefit by saving in an HSA. Wait what? Yes,HSAs offer a triple tax benefit that’s unheard of in other retirement accounts.It’s these benefits that make an HSA the best retirement vehicle (seriously, I just said that).

So what are these amazing benefits?

1. Pre-tax contributions

All of your HSA contributions are pre-tax. This is done via payroll deduction, but you can also choose to do it manually if you’re self-employed (it’s more tedious). This means you get upfront tax savings once you contribute, just as you would with a traditional 401k.

For example, if you’re in the 25% tax bracket and contribute the maximum of $8,300 to a family, you’ll likely see a tax savings of about $2,075 in the first year. If you’re able to make contributions via payroll deduction, you can also save on FICA (Social Security and Medicare) taxes. This will save you another $634 per year.

So, by contributing the maximum, you’ll immediately realize a tax saving of $2,709.

2. Growth is tax-free

Just like an IRA, all of the money inside your HSA grows tax-free. So, if you invest and see huge gains – it’s tax-free. If you have a pool of money that pays dividends, dividends are tax deductible. Just sit back and watch your money grow over time.

3. Withdrawals are tax-free for qualified medical expenses

With an HSA, qualified medical expenses can be deducted tax-free at any time. We’ll talk about this in a moment, but I want you to remember this phrase: It can be withdrawn at any time. Unlike a flexible spending account where there are repayment schedules, this does not apply to your HSA. For reference, the IRS has a very comprehensive list of eligible medical expenses.

In addition to these three, there are two great benefits to consider:

4. After age 65, withdrawals are taxed just like an IRA (no penalty)

If you still have money in your HSA at age 65, and you can’t offset qualifying medical expenses (because you’re probably a star and have millions in savings in your HSA), don’t worry! After age 65, your HSA works just like a traditional IRA. There are no penalties for withdrawing funds from your account – you will only pay ordinary income tax on the funds. As such, you can leverage your HSA, along with other retirement accounts, to achieve tax diversification in retirement.

5. You can use HSA funds for your Medicare premiums

Finally, another unspoken benefit of an HSA is that you can use your account HSA funds after age 65 for your Medicare premiums – Tax exempt. No other medical savings account has ever allowed tax-free funds to be used for medical care or insurance premiums, so this is huge. You may not realize it, but you may be spending $400 a month on Medicare premiums. If you have an HSA, you can use pre-tax funds for that, instead of other accounts or Social Security.

Don’t confuse HSA and FSA

When talking about using an HSA as an IRA, it’s important not to confuse an HSA with the more common FSA, or flexible spending account. These accounts also let you save pre-tax money for medical expenses, but the limits are lower, and you can’t invest the money. Worse still, financial services authorities only allow simple renewals each year.

See the full difference between HSA and FSA here, or this quick comparison chart:

How to Leverage Your HSA Like a Secret IRA

So, all of these tax benefits are charming, but seriously, how can you really leverage an HSA like a “secret” IRA? Well, let me tell you Secret HSA Hack This really puts the HSA over the top.

Remember this phrase from earlier:Can you withdraw money from your HSA at any time?This is what makes an HSA so powerful and why I recommend using an HSA as your primary way to save for retirement.

Basically, if you are able to pay your medical bills today, you should maximize your HSA contribution between your funds and your employer. Most employers typically offer HSAs Contribute anywhere from $600 to $1,250 to your account. It’s a free match, just like a 401k, and you’ll never want to leave money on the table. So, it is your responsibility to make up the difference to contribute to the maximum.

When you get the bill from your health service providers, you simply pay the bill out of your pocket.And save the receipt. I simply created a file called “Medical Bills – To Be Paid”. Here’s what it looks like:

Then, leave the money in your HSA to grow as long as possible. Contribute the maximum to your HSA each year. Rinse and repeat. Over time, the additional contributions and compounding of funds will allow your HSA to grow, grow, grow! When you get new medical receipts, simply add them to your file.

My personal goal is to let this money grow for years. Maybe 65, but maybe earlier. I don’t have a specific deadline, but I know I want the power of compounding to take over and maximize my tax-free gains.

Finally, when you’re ready to withdraw, just submit your big file titled “Medical Bills to Be Reimbursed” and you’ll get a big pool of tax-free money. You can even do a little at a time. It’s not like you have to take everything out at once.

This is how you can leverage your HSA as a “secret” IRA.

Concerns about having a high deductible health plan (HDHP)

One of the biggest concerns with an HSA is having a high-deductible health plan (HDHP). It can be a scary change from traditional HMO health plans, and frankly, a lot of the language used in most employers’ open enrollment packages makes it very difficult to understand what you’ll really be paying.

After having an HDHP for a while, and getting some of the medical bills that went with it, I wanted to alleviate some of the fears about getting an HDHP, because I found that it wasn’t scary at all, and in many cases, it was cheaper than my old insurance coverage with the same employer.

It’s important to remember that an HDHP is still insurance. And with insurance, you get a lot of coverage already. For example, most HDHPs include 100% coverage for health visits, vaccinations, and more. Many services are covered at 80% – sick visits, x-rays, surgery, etc. And many plans still offer decent coverage for prescription drugs, for $4, etc.

If you want to compare your options that include an HSA, check out Policy Genius for a quick and easy quote.

My story

You may think that the 80% coverage number is scary, but you also need to realize that you will be paying 80% of the insurance price negotiated with the hospital – which is usually very cheap. For example, I recently had to have a CT scan. The hospital billed my insurance at $2,100. But I only had to pay $370.16 – or 17%. When the time comes, I can always submit a bill for $370 to get reimbursement from my HSA.

Under my old PPO plan, I was surprised that vaccinations and health visits were not covered. With an infant, this resulted in a lot of medical expenses. Now, under an HSA with an HDHP, health visits and vaccinations are 100% covered – so I see immediate medical expense savings.

Of course, every plan is different, and you should read the fine print of any potential health insurance plan. But remember:

• HDHPs are still insurance, so you automatically get a lot of coverage
• You will only pay a portion of any bills, at the amount negotiated by the insurance company
• The maximum you will pay each year is the out-of-pocket maximum

conclusion

If you qualify for a health savings account or HSA, you must max out each year and utilize it like an individual retirement account. An HSA plays a crucial role in arranging your retirement savings.

Remember, the main benefits with HSAs and the reason to use an HSA as an IRA are:

• Triple tax savings
• Annual deportation and deportation from employers
• Ability to pay expenses at any time
• It acts like a traditional IRA after age 65

If this doesn’t interest you and make you think an HSA is the best retirement account ever, I don’t know what to tell you. I make the point that an HSA is the best retirement account, even though it’s technically not a retirement account. Now go and get this setup.