Health savings accounts (HSAs) have traditionally been framed as a tool for covering out-of-pocket medical expenses each year. As a result, most people treat their HSAs as “spend it down” accounts, covering current medical expenses as needed.
While that’s certainly one way to use it, it’s worth remembering that an HSA is the only account in the tax code offering a triple tax advantage. An HSA can be a powerful retirement savings vehicle—but only when used strategically. If you’re currently enrolled in a high-deductible health plan through Northern Light Health, the University of Maine System, or another employer, here’s what you need to know about getting the most growth potential out of your HSA.
The Basics of a Health Savings Account (HSA)
A health savings account is, as it sounds, a type of savings account used specifically for eligible medical and healthcare-related expenses. Not everyone is eligible to open an HSA, as you must be enrolled in a high-deductible health plan (HDHP) and have no other disqualifying coverage.
In 2026, an HDHP is defined as having:1
$1,700 minimum deductible ($3,400 for families)
$8,500 maximum out-of-pocket expenses ($17,000 for families)
HSAs also have annual contribution limits, which are adjusted each year for inflation. In 2026, the contribution limits are:1
$4,400 for individuals
$8,750 for families
+$1,000 for individuals or families 55 and older
Contribution limits may be lower for those who participated in an HDHP for only part of the year.
The Triple Tax Advantages of an HSA
HSAs are some of the most tax-advantaged accounts available, boasting three distinct tax features:
1. Contributions reduce your taxable income.
Similar to a retirement savings account, the contributions you make to your HSA reduce your taxable income, up to the annual limit. If contributions are made through payroll, they’re taken out of your paycheck pre-tax. You can also manually contribute to the account, in which case you may deduct contributions from your tax return.
2. Growth is tax-deferred.
As the account earns interest or returns and grows over time, you will not be required to pay taxes annually on the growth (as can be the case with a taxable investment account). The funds remain uninterrupted, allowing them to compound and grow more effectively over time.
3. Withdrawals for eligible expenses are tax-free.
If funds are used to cover a qualified medical expense (as defined by the IRS), the distribution is tax-free. Just be sure to save your receipts as proof of qualifying expenses. Unlike retirement accounts, there is no age requirement to use or access the funds.
If a distribution is made for a non-medical expense, you will be required to pay both income tax and a 20% tax penalty on the amount. That is, until you turn 65.
Bonus: HSAs are De Facto Retirement Accounts
Once you turn 65, your HSA essentially converts into another tax-deferred retirement account, similar to a 401(k), 403(b), or traditional IRA. You may use the funds to cover non-medical expenses without incurring the 20% tax penalty. You will, however, still be responsible for paying income tax on the withdrawal.
If you continue to use the account for medical costs, however, your distributions remain tax-free. Considering healthcare expenses increase as you age, allowing your HSA to compound and grow, rather than spend it down annually, may be an effective way to cover increased costs in retirement.
For example, let’s assume Dave, a 52-year-old Northern Light Health employee, contributed $4,000 annually to his HSA. Each year, his account earned 3% interest. In 13 years, by the time he turned 65, he’d have around $62,470.54—assuming he didn’t withdraw during that time.2
Now, as Dave enrolls in Medicare, he can use those funds from his HSA tax-free to cover Medicare premiums, long-term care insurance premiums or services, prescriptions, medical equipment, and more.
How Your HSA Supports Retirement
Healthcare expenses outpace inflation annually. As of now, an average 65-year-old couple is expected to spend around $345,000 on healthcare costs over their lifetimes.3 In addition to being one of your largest expected expenses in retirement, it’s also one of the least predictable.
As we mentioned, HSA funds can be used to pay for big expenses in retirement, including Medicare Part B and D premiums, dental and vision costs, and even long-term care insurance premiums.
When you build and preserve your HSA with retirement in mind, you gain the ability to cover healthcare expenses without having to tap into other taxable income sources like your 401(k) or 403(b). Not only does this keep your retirement accounts earning more for longer, but it also helps keep your Modified Adjusted Gross Income (MAGI) lower, as these calculations impact Medicare premium surcharges.
How to Shift from Spending to Saving in Your HSA
If you’ve decided to leverage your HSA as a retirement savings account, consider investing the funds rather than leaving them in a default cash account with minimal interest earnings.
Pay your current qualified medical expenses out of pocket (as if the HSA didn’t exist), and keep your receipts. There is no deadline to reimburse yourself from the HSA, so those receipts can be used to make future tax-free withdrawals—even years down the road in retirement.
If you’re able, maximize contributions each year you’re HSA-eligible, and don’t forget to take advantage of the $1,000 catch-up contribution available once you turn 55. It’ll be especially important to max out contributions in the five years before Medicare enrollment begins at 65, since that’s when your HSA contribution eligibility ends (and contribution limits are likely the highest).
What University of Maine System and Northern Light Employees Should Know
If you aren’t sure about eligibility, check with your human resources department to learn more about your health plan and additional benefits, including access to an HSA. Not all HDHP options qualify for an HSA.
If you are indeed eligible, you may need to manually enroll in an HSA (if you haven’t already). Once you enroll, however, you should be able to direct contributions automatically from your paycheck.
Some employers even offer HSA contribution matching as an employee benefit. If that’s the case, consider contributing up to the employer matching limit—otherwise, you’re leaving free money on the table.
How to Get the Most Out of Your HSA
To leverage your HSA to the fullest, stop treating it as a short-term spending account. Shift cash into growth-oriented funds, and remember to track your out-of-pocket medical receipts for future reimbursement. Maximizing contributions before Medicare enrollment will help supercharge your healthcare savings for retirement, giving the rest of your retirement savings some important breathing room.
If you’d like to review how your HSA strategy fits into your broader retirement and healthcare plan, feel free to schedule a call with our team today.
Sources:
1 https://www.congress.gov/crs-product/R45277
2 https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
