How to turn healthcare expenses into tax-free retirement income
Revisiting the flexibility and power of an HSA account
When most people women about saving for retirement, they think 401(k)s, IRAs, and Roth IRAs.
But there’s another account that is often overlooked.
And it’s one of the biggest “bang for your buck” tools available.
I’m talking about the Health Savings Account, or HSA.
Now, I know—“health savings” doesn’t exactly scream retirement strategy.
It sounds like it’s just for covering doctor bills and dentist visits.
But hear me out: the HSA is one of the few accounts that gives you a triple tax advantage, and used correctly, it can be a powerhouse for your retirement years.
I’ve written about HSAs before here and here.
But I want to revisit some of the key details today…
Let’s break it down.
What’s so great about an HSA?
In plain English: it’s a savings account for healthcare expenses that gives you three layers of tax benefits:
Contributions are tax-deductible (or pre-tax if through your employer)
Growth is tax-free
Withdrawals are tax-free—as long as the money is used for qualified medical expenses
If you’re using your HSA right, the IRS never gets a dime.
Even better?
Unlike a Flexible Spending Account (FSA), your HSA money doesn’t vanish if you don’t use it by year-end.
It rolls over, grows, and is yours to keep—even if you switch jobs or retire.
Why HSAs matter even more for women in retirement
For many of the women I work with - smart, thoughtful, and newly retired or close to it - an HSA can play a powerful role in their financial plan.
Why?
Women live longer which often means higher healthcare costs over a longer lifespan.
Women often carry more of the caregiving load, which might mean less time in the workforce and less in traditional retirement savings.
Healthcare costs in retirement are real. Fidelity estimates a 65-year-old woman retiring today could need $165,000 just to cover medical expenses in retirement—not including long-term care.
An HSA can be a dedicated, tax-free bucket to help with those costs.
How to max out the HSA advantage
If you're in a high-deductible health plan (HDHP), you're eligible to contribute to an HSA.
In 2025, the contribution limit is $4,300 for individuals or $8,550 for families.
And if you’re 55 or older, you can contribute an extra $1,000 per year.
Here’s where the magic happens:
Invest your HSA funds, rather than letting them just sit in cash. Many HSA providers offer investment options just like a brokerage or retirement account. I manage HSA accounts for many of my clients alongside the rest of their portfolio.
Pay out-of-pocket for today’s medical expenses, and let your HSA funds stay invested and grow for the future.
Then later - even years or decades later - you can reimburse yourself from your HSA for those past expenses. As long as you keep the receipts and can match the withdrawal to a legitimate medical cost, it’s tax-free.
Think of it like a delayed reimbursement strategy.
And the “delay” can be years.
Or decades.
You’re creating a tax-free reimbursement stream in the future and letting those dollars grow in the meantime.
But your paid for healthcare expense doesn’t grow.
Just remember to hang on to those receipts.
What to watch out for
Of course, it’s not all sunshine and triple-tax-free rainbows.
A few things to be mindful of:
Once you enroll in Medicare, you can no longer contribute to an HSA. That usually happens when you turn 65. (So if you’re in your early 60s, and still HSA-eligible, the clock is ticking...)
Withdrawals for non-medical expenses before age 65 come with a 20% penalty plus income tax.
After age 65, you can take out money for non-medical expenses without the penalty, but you’ll pay income tax—just like a traditional IRA.
You don’t want to leave your HSA to non-spouse beneficiaries. If you leave your HSA to anyone other than your spouse, the entire balance becomes taxable in the year of your death. Ouch! So we want to be thoughtful about how we integrate an HSA into your retirement income and estate planning.
Related to that last point above, it’s great to let your HSA grow over time, but you also want to use it and prevent the loss of tax benefits if you die with funds still in your account.
If you have a spouse and they survive you, they can use your HSA like their own.
But if you die and it goes to your kids, all those potential tax savings vanish.
Or do they?
If you die with a remaining HSA balance and it’s inherited by anyone other than your spouse, they have one year to use the funds to cover your unpaid medical bills tax-free.
So, what’s the plan?
Here’s how I often guide clients in their late 50s and early 60s who are HSA-eligible:
Max out contributions while you still can, especially those catch-up contributions.
Invest your HSA funds, just like you would an IRA. Let them grow for your future.
Pay cash for medical expenses today, and save those receipts.
Create a paper trail—keep a digital folder or binder of medical receipts. It’ll be worth it when you want to reimburse yourself 10 or 20 years from now.
Use the HSA later in retirement for things like Medicare premiums, dental work, medical procedures, and other out-of-pocket costs that traditional insurance won’t cover. But don’t put off using it indefinitely.
And if your healthcare plan changes or you’re no longer eligible to contribute?
No problem—you can still invest what’s already there and withdraw it tax-free in the future.
The bottom line
Health Savings Accounts aren’t flashy, and they definitely don’t get the attention they deserve.
But for women approaching (or already in) retirement, they can offer a sense of financial security, a little more breathing room in your plan, and a way to cover future (or past) healthcare costs with money that’s never taxed.
If you’re curious about how an HSA fits into your retirement picture—or want help making sure you’re using yours wisely—I’d love to chat.
Links & things
I enjoyed the opportunity to join Canadian financial advisor Joe Curry on his Your Retirement Planning Simplified podcast recently.
Check it out:
Thanks for reading.
Until next Wednesday,
Russ
This is so easy to forget about discussing. Thanks for bringing it to the front burner.