Most Americans think of a health savings account, or HSA, as a convenient way to cover doctor visits, prescriptions and unexpected medical bills. However, these accounts can do considerably more for people who understand how to use them.

With healthcare expenses remaining a major concern for retirees, an HSA offers an opportunity to accumulate investment gains while potentially avoiding federal income taxes on contributions, growth and qualified withdrawals.

And Americans are starting to take notice.

HSA Accounts Are Growing, and So Is the Money Inside Them

According to a new report from HSA research firm Devenir, Americans held approximately 42.6 million health savings accounts as of June 30, 2026, containing nearly $192 billion in assets.

That represents a 20% increase in assets from a year earlier, while the number of accounts grew 7%.

Perhaps more importantly, a significant shift is taking place in how Americans use these accounts.

For the first time, invested HSA assets have surpassed traditional cash balances. Approximately $100 billion, or 52% of all HSA assets, are now invested.

Yet only 4.7 million accounts, representing roughly 11% of all HSAs, hold investments. That suggests a relatively small share of account holders are taking advantage of the full long-term investment potential.

Devenir also found that nearly 1.9 million accounts now hold at least $25,000, illustrating how HSAs are increasingly becoming meaningful savings vehicles.

The trend reflects a broader change in retirement planning. As Americans face higher healthcare expenses and uncertainty about future medical costs, tax-advantaged accounts are attracting more attention from households looking to stretch their retirement dollars.

The Triple Tax Advantage That Makes HSAs So Valuable

What makes an HSA particularly attractive is its unusual combination of three tax benefits.

First, eligible contributions are deductible from federal taxable income, with qualifying employer contributions excluded from income. Second, investment earnings inside the account can accumulate without federal income taxes. Finally, withdrawals used for qualified medical expenses are generally tax-free.

Consider someone contributing $4,500 annually to an HSA while investing the money for retirement.

At a hypothetical 7% annual return, contributing that amount every year for 20 years could produce approximately $184,000, assuming end-of-year contributions.

Of that total, $90,000 would represent contributions, while roughly $94,000 would come from investment growth.

If the entire balance were eventually used for qualified healthcare expenses, those withdrawals could be federally tax-free.

For comparison, traditional retirement accounts generally offer a trade-off between receiving a tax deduction today and receiving tax-free withdrawals later. An HSA can potentially offer both advantages when used correctly.

There is another potential benefit for employees. HSA contributions made through an eligible employer cafeteria plan can also avoid Social Security and Medicare payroll taxes, creating additional savings beyond the income-tax deduction.

The calculation becomes particularly attractive for workers expecting substantial medical expenses in retirement.

However, state tax treatment varies, investment returns are never guaranteed, and medical expenses must satisfy IRS requirements to qualify for tax-free withdrawals.

New 2027 HSA Limits Give Savers More Room to Contribute

The IRS has announced higher annual contribution limits for 2027, creating another opportunity for eligible Americans to increase their tax-advantaged savings.

HSA Limits	2026	2027
Individual contribution	$4,400	$4,500
Family contribution	$8,750	$9,000
Age 55+ catch-up	$1,000	$1,000
Individual minimum deductible	$1,700	$1,750
Family minimum deductible	$3,400	$3,500
Individual out-of-pocket maximum	$8,500	$8,700
Family out-of-pocket maximum	$17,000	$17,400

These contribution limits include both employee and employer contributions. The catch-up amount applies to eligible individuals age 55 and older, and contribution limits can be prorated depending on when someone becomes eligible.

For married couples who are both 55 or older and otherwise eligible, each spouse may make a separate $1,000 catch-up contribution into an HSA held in that spouse’s name.

That means an eligible couple with family coverage could potentially contribute a combined $11,000 in 2027, including both catch-up contributions.

The higher limits create additional opportunities for tax savings, particularly for households in higher federal income-tax brackets.

A Little-Known IRS Rule Could Let Your HSA Grow for Decades

One of the most valuable HSA strategies involves something surprisingly simple: paying today’s medical bills with money outside the account.

Under IRS rules, HSA owners can reimburse themselves for eligible medical expenses years after those expenses were incurred, provided the expenses occurred after the HSA was established and were never previously reimbursed or deducted.

There is generally no deadline requiring an account holder to request reimbursement within the same calendar year.

That opens the door to a potentially powerful retirement strategy.

Imagine a 40-year-old investor who pays $3,000 in eligible medical expenses out of pocket rather than withdrawing that amount from an HSA. Instead, the investor keeps the $3,000 invested for another 25 years.

At a hypothetical 7% annual return, that $3,000 could grow to approximately $16,300.

The investor could later withdraw the original $3,000 tax-free as reimbursement for the documented medical expenses. The remaining account balance could continue growing or be used for other qualified medical expenses.

The catch is recordkeeping. Account holders need documentation showing when medical expenses were incurred, how much was paid and that the costs were eligible and never reimbursed elsewhere.

Keeping digital copies of medical receipts, insurance statements and payment records can make this strategy considerably easier to manage.

For investors with sufficient emergency savings and cash flow, delayed reimbursement can preserve years of tax-advantaged compounding.

Your HSA Becomes Even More Flexible After Age 65

Reaching age 65 changes how an HSA can be used, potentially making it a valuable addition to a retirement income strategy.

Before age 65, withdrawals for nonqualified expenses are generally subject to ordinary income taxes plus a 20% additional tax.

After age 65, that additional 20% tax disappears.

An account holder can withdraw HSA funds for any purpose after reaching 65, although nonmedical withdrawals remain subject to ordinary income taxes.

That effectively gives the HSA some of the flexibility of a traditional retirement account while preserving its superior tax treatment for eligible healthcare spending.

Medicare Premiums Create Another Tax-Saving Opportunity

One particularly valuable benefit involves Medicare.

HSA funds can generally be used tax-free to pay qualifying Medicare premiums, including Part B, Part D and Medicare Advantage premiums. Eligible income-related monthly adjustment amounts, known as IRMAA surcharges, can also be covered.

Traditional Medicare supplemental insurance, commonly known as Medigap, is an important exception. Those premiums do not qualify for tax-free HSA distributions.

There is another rule approaching retirees need to understand.

Once an individual enrolls in Medicare, that person can no longer make HSA contributions. Existing funds, however, remain available for qualified tax-free withdrawals.

Workers who delay Medicare enrollment should also be aware that Medicare Part A coverage can be retroactive when they eventually enroll, potentially creating excess HSA contributions.

For someone approaching retirement, coordinating HSA contributions with Medicare enrollment can prevent unexpected tax complications.

New Rules Are Opening HSAs to More Americans

Changes that took effect in 2026 have expanded HSA eligibility, creating opportunities for workers who previously had limited access.

Under provisions of the 2025 federal tax law, Bronze and Catastrophic health insurance plans available through the Affordable Care Act marketplace are now generally treated as HSA-compatible beginning in 2026, even when they do not satisfy all the traditional high-deductible plan requirements.

IRS guidance also addresses qualifying Bronze and Catastrophic plans purchased outside an exchange.

The expansion could prove particularly helpful for self-employed Americans, freelancers and early retirees who purchase their own healthcare coverage.

For example, someone retiring at 60 who purchases eligible Bronze coverage may now be able to contribute to an HSA for the years before Medicare eligibility, assuming all other HSA requirements are satisfied.

That provides an additional tax-advantaged savings opportunity during a period when healthcare expenses and retirement tax planning can become increasingly important.

Another provision allows certain direct primary care arrangements to coexist with HSA eligibility, while permitting tax-free HSA payments for qualifying direct primary care fees.

The expansion broadens access to an account that historically was more closely associated with employer-sponsored insurance plans.

The Biggest HSA Mistake May Be Keeping Too Much Money in Cash

The latest industry data reveal an interesting divide between Americans who use HSAs primarily for current healthcare spending and those building longer-term investment balances.

Although invested assets now represent more than half of all money held in HSAs, nearly nine out of ten accounts still do not hold investments.

That matters because the ability to invest is one of the account’s most valuable long-term features.

Someone who leaves $10,000 in an HSA earning a hypothetical 1% annually would accumulate approximately $12,200 over 20 years.

At a hypothetical 6% investment return, that same $10,000 could grow to approximately $32,100.

The difference approaches $20,000, before accounting for account fees and the risks associated with investing.

Of course, investing HSA funds introduces market risk. Money needed for near-term medical bills generally belongs in cash or similarly liquid investments.

But investors who have enough cash available to cover current medical expenses may benefit from considering a longer-term allocation.

A Three-Part Strategy for Maximizing HSA Benefits

For eligible households, a practical approach involves three priorities.

First, capture the immediate tax benefit. Contribute as much as your budget and eligibility allow, taking advantage of employer contributions and any available catch-up amounts.

Second, separate short-term spending from long-term investing. Maintain enough liquid funds to cover reasonably expected medical expenses while considering diversified investments for money unlikely to be needed for several years.

Third, preserve flexibility for retirement. Keep records of eligible out-of-pocket expenses, understand Medicare withdrawal rules and periodically review how the HSA fits alongside traditional retirement accounts.

This approach allows an HSA to serve multiple purposes as financial circumstances change.

One Important Drawback: HSAs Can Be Less Attractive to Inherit

For all their advantages, HSAs have a potentially significant estate-planning disadvantage.

When an HSA owner dies, a surviving spouse who is the designated beneficiary can generally take ownership of the account and continue using its tax benefits.

The treatment changes considerably when someone other than a spouse inherits the account.

In those cases, the HSA generally stops being an HSA at death, and its value becomes taxable income to the beneficiary under applicable rules.

There are limited adjustments, including certain qualified medical expenses of the deceased account holder that the beneficiary pays within one year after death.

This creates an important distinction between HSAs and some other retirement savings accounts.

For retirees with substantial HSA balances, it may make sense to prioritize qualified healthcare spending from the HSA rather than preserve every dollar for heirs.

The ideal withdrawal strategy depends on the account holder’s expected medical expenses, tax situation, beneficiaries and other retirement assets.

What Americans Should Review During Open Enrollment

With many employers preparing for 2027 open enrollment, consumers have an opportunity to reassess how their health coverage and savings decisions work together.

The most important consideration is whether an HSA-eligible insurance plan makes financial sense after accounting for premiums, deductibles, provider networks, expected healthcare utilization and potential out-of-pocket expenses.

A cheaper monthly premium can become expensive if an individual has substantial recurring medical needs.

Likewise, an insurance plan with a higher deductible may still offer attractive overall economics when employer HSA contributions, lower premiums and tax savings are included.

Employees should also review HSA investment options, maintenance fees and whether account balances can be transferred to a different provider.

For those approaching retirement, Medicare enrollment timing and potential HSA withdrawals deserve particular attention.

And for households already contributing regularly, the biggest opportunity may involve deciding how much of the account should remain in cash versus longer-term investments.

The Real Opportunity Is Bigger Than Healthcare Savings

Health savings accounts have quietly become an important component of American retirement planning.

With nearly $192 billion already held in HSAs and more than half of those assets invested, their role is expanding beyond paying for routine medical expenses.

For households that qualify, the combination of deductible contributions, tax-free investment growth and tax-free qualified healthcare withdrawals can provide advantages that are difficult to replicate elsewhere.

The opportunity becomes particularly compelling for investors who can leave a portion of their HSA invested over many years.

As contribution limits rise in 2027 and eligibility expands, Americans have more reasons to evaluate whether an HSA belongs in their overall financial strategy.

For those who use the accounts carefully, the long-term tax savings could be substantial.