Retirement accounts often require Americans to pay taxes at some point, whether on contributions or withdrawals. Traditional 401(k) plans offer an upfront tax deduction but require retirees to pay taxes on withdrawals, while Roth individual retirement accounts (IRAs) allow tax-free qualified withdrawals. However, one lesser-known account offers a tax advantage that extends through every stage of saving. Established under Section 223 of the Internal Revenue Code (IRC), the Health Savings Account (HSA) lets eligible Americans contribute pretax money, grow investments tax-free, and withdraw funds tax-free for qualified medical expenses. Despite this triple tax advantage, HSAs remain underused for retirement healthcare costs. Only 23% of Americans contribute to an HSA for that purpose, according to Fidelity Investments’ 24th annual retiree health care cost estimate. For eligible workers, overlooking the account could mean missing valuable long-term savings. Also Read: Social Security hides a double tax break inside one loss How Section 223 stacks 3 benefits 1 one HSA Contributions made through a cafeteria plan under IRC Section 125 bypass federal income, Social Security, and Medicare taxes, and employer HSA contributions are excluded from income under Section 106(d), according to IRS Publication 969. Workers who contribute outside an employer plan can still claim the full deduction on Form 1040 without itemizing other expenses. In the account, interest and other earnings on HSA assets are tax-free while held in the HSA, the IRS confirmed. Withdrawals used for qualified medical expenses are excluded from gross income under IRC Section 223(f)(1), so the money goes untaxed at every stage. A traditional 401(k) taxes the withdrawal, and a Roth IRA taxes the contribution, which means neither vehicle matches the HSA’s full exemption. Steve Betts, Head of Fidelity Health at Fidelity Investments, said the account deserves a larger role in long-term retirement planning. HSAs are more than just a short-term savings tool, they can serve as a critical component of the retirement readiness equation, For 2026, the IRS set the HSA contribution ceiling at $4,400 for individual coverage and $8,750 for family coverage in Revenue Procedure 2025-19. Workers aged 55 or older can add a $1,000 catch-up contribution that is fixed by statute and does not adjust for inflation, the IRC section 223(b)(3) showed. Why most eligible workers still leave the triple benefit on the table Fidelity’s data shows a persistent disconnect between the HSA’s design and how Americans actually use the account during their peak earning years. Among workers aged 55 to 64, just 15% carry an HSA, even as they face growing medical costs ahead of retirement. More than half of the respondents Fidelity surveyed were unaware an HSA can be used as a retirement savings vehicle. More Personal Finance: Pay raises trail inflation so Ramit Sethi says, “Ask for $5,000” Your home insurance deductible could be $20,000. Would you be ready? Why your next car purchase will be an affordability nightmare An average of 73% of HSA clients across the 11 providers Morningstar surveyed use their accounts only for spending, not for investing, Morningstar’s 2025 HSA Landscape Report found. That pattern erases the second and third tax benefits entirely, because money spent immediately never compounds and never generates a tax-free retirement withdrawal. A 65-year-old retiring in 2026 can expect to spend an average of $185,500 on healthcare over retirement, up 7.5% from Fidelity’s 2025 estimate of $172,500, according to Fidelity. Account holders who deplete the balances on immediate costs reach age 65 with no HSA reserve to offset that rising six-figure medical expense. Many workers overlook the HSA’s triple tax advantage, missing opportunities to grow retirement savings while preparing for rising healthcare costs. Liubomyr Vorona / Getty Images A couple’s HSA can cover nearly 17 years of Medicare premiums A married couple with a family high-deductible health plan (HDHP) coverage can contribute $8,750 annually, and a spouse aged 55 or older adds a $1,000 catch-up for $9,750 combined. If that couple begins maxing the HSA at age 58 and continues through 64, they deposit $68,250 over seven years of tax-free contributions. Assuming a 6% average annual return on invested HSA funds, the balance grows to approximately $82,000 by age 65, with $13,750 in tax-free gains. The standard Medicare Part B premium reached $202.90 per month in 2026, up $17.90 from $185.00 in 2025, the Centers for Medicare and Medicaid Services confirmed. For a couple, that totals $4,869.60 each year, which means the $82,000 HSA balance could fund roughly 16.8 years of Part B premiums tax-free. Medicare Part B premiums qualify as HSA-eligible expenses, the IRS Publication 969 indicates, and those withdrawals fall outside the income test for surcharges on higher earners. Withdrawals from a traditional IRA or 401(k) count toward that threshold, potentially adding hundreds of dollars in monthly premiums for retirees above the income limit. How workers with an HDHP can capture the full triple benefit Workers who use their HSA to pay current bills can shift to paying routine costs out of pocket and let the balance grow, Fidelity noted. That shift turns the account from a medical spending card into a retirement asset that compounds without an annual tax drag. A 2026 plan qualifies as an HDHP when its deductible reaches $1,700 for self-only coverage or $3,400 for family coverage, as specified in Revenue Procedure 2025-19. Catch-up contributions must flow into a separate HSA in the worker’s own name, because the IRS bars those funds from shared accounts, Publication 969 stated. Just 3 in 10 Americans invest in their HSAs, so the majority forfeit years of tax-free growth that would offset rising retirement costs, Fidelity found. Whether the triple benefit belongs ahead of or alongside 401(k) and IRA contributions depends on each household’s deductible, tax bracket, and retirement timeline. Related: IRS clock ticks down on retirees with unfinished 2026 RMDs
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