One of the biggest retirement decisions you'll have to make in 2025 is where to put your savings. You've probably weighed the pros and cons of IRAs and a 401(k) if you have access to one. But those might not be your only options.
Workers with qualifying health insurance plans are eligible to contribute to another type of account that offers a unique set of benefits. Here's what you need to know to decide if it's right for you.
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Health savings accounts (HSAs) for retirement
Health savings accounts (HSAs) aren't technically retirement accounts. They're designed to hold medical savings for those with high-deductible health insurance plans -- ones with a deductible of at least $1,650 for individuals or $3,330 for families in 2025. If your insurance doesn't fit this criteria, you can't contribute to an HSA, though you can still use any HSA funds you have from past years.
Individuals who qualify can contribute up to $4,300 to an HSA in 2025 while families can contribute up to $8,550. Those 55 and older can add another $1,000 to these limits. These contributions reduce your taxable income in the year you make them and any earnings grow tax-deferred. Withdrawals for medical expenses at any age are tax-free. You will still owe taxes on non-medical withdrawals, plus a 20% penalty if you're under 65.
HSAs are a great option for those who want to set aside money for a retirement but lack access to an employer-sponsored retirement plan. You can also use an IRA in this situation, but if you max this out, an HSA is a nice option to fall back on.
Getting the most out of your HSA
If you don't already have an HSA, you can open one with many banks and brokers. It's best to choose a provider that enables you to invest your HSA funds. Otherwise, you won't earn much in interest.
Review your investment options carefully, just as you would with a 401(k) or IRA. Aim to keep your fees under 1% of your assets each year to maximize your savings' growth.
If you plan to use your HSA funds for retirement, try to avoid early withdrawals. It's tempting to do this, especially if you have a large medical expense coming up. But it could derail your retirement plans. Save for planned medical expenses in a high-yield savings account or talk with your healthcare provider about a payment plan so you aren't hit with a huge bill.
Once you're in retirement, use your HSA funds to cover your healthcare expenses. You won't be able to contribute to the account once you're on Medicare. But you can use the funds you have to pay for your Medicare deductibles, premiums, and copays as well as for dental and vision care and other expenses that Medicare doesn't cover.
Keep in mind that HSA contribution limits increase over time, so you may be able to set aside more money here in future years. You also want to keep an eye out for HSA changes, especially if you're a long way from retirement. You may need to adapt your savings strategy if the government alters the rules regarding HSA distributions.
