HSAs: The Retirement Savings Opportunity Many Clients Are Overlooking
By Jodie Norquist, CIP, CHSP
For many consumers, a health savings account (HSA) is simply a convenient way to pay for prescriptions, office visits, or the occasional unexpected medical expense.
But increasingly, financial organizations are seeing a different picture emerge: clients using HSAs not just as spending accounts, but as long-term wealth-building tools. Some of them have built sizable accounts rivaling IRAs or 401(k) plans.
And with healthcare costs continuing to rise in retirement, the opportunity is significant.
Clients who understand how to strategically use an HSA can create a powerful source of tax-advantaged savings for future healthcare expenses, while potentially improving their overall retirement readiness at the same time.
According to Devenir’s 2025 Year-End Research Report, the HSA market ended 2025 with nearly $174 billion in HSA assets across 41.7 million accounts. That marks a 19 percent increase in assets year-over-year, while account growth remained strong at 6 percent.
In addition to having an HSA checking or savings account, many HSA owners are starting to look for other types of investments, such as mutual funds, stocks, bonds, or exchange traded funds. Devenir found that HSA investment assets climbed to nearly $85 billion by the end of 2025, up 33 percent from the previous year. About 4.2 million accounts, or roughly 10 percent of HSAs, held invested dollars, up 22 percent year-over-year.
Devenir projects the HSA market will surpass 49 million accounts and $234 billion in total assets by the end of 2028.
This creates an important educational opportunity for financial organizations.
The Triple Tax Advantage of HSAs
HSAs remain one of the few accounts offering a true triple tax advantage.
Contributions may be tax-deductible
Earnings grow tax-deferred
Qualified distributions are tax-free
Many clients understand the contribution piece, but fewer fully appreciate the long-term planning potential.
That gap matters because many account owners continue to treat HSAs like checking accounts, spending contributions as quickly as they are deposited, rather than allowing balances to accumulate and potentially grow. For organizations working with account owners, that creates an opening for meaningful education and deeper client engagement.
Retirement Healthcare Costs Are Becoming Harder to Ignore
One reason HSAs are attracting more attention as retirement tools is simple: healthcare is expensive.
Many consumers underestimate how much they may spend on healthcare in retirement. Clients often focus heavily on income replacement during retirement planning while underestimating healthcare as a separate financial strategy.
HSAs can help address that concern because qualified medical distributions remain tax-free at any age.
For clients who can leave funds untouched and invested for years, the account can evolve from a short-term spending tool into a dedicated healthcare reserve.
The “Pay Out of Pocket Now” Strategy
One strategy receiving growing attention involves clients paying current medical expenses out of pocket while allowing HSA assets to remain invested.
Because there is no deadline requiring reimbursement for qualified expenses incurred after the HSA was established, some account owners save receipts for years or even decades.
Later, they may reimburse themselves tax-free.
For financially stable clients who can afford current healthcare costs without tapping into their HSA balances, this approach can provide several potential advantages.
More time for tax-deferred growth
Additional retirement healthcare reserves
Greater flexibility later in retirement
Another source of tax-advantaged distributions
Of course, this strategy also depends heavily on documentation discipline.
Clients must maintain records showing that the expense
was qualified,
occurred after the HSA was established,
was not previously reimbursed, and
was not deducted elsewhere on a tax return.
While HSA owners are responsible for tracking their expenses, financial organizations have an opportunity to educate clients about the importance of record retention.
Many Clients Still Misunderstand Distribution Rules
One of the most common areas of confusion involves HSA distributions themselves.
Because many HSAs include debit cards and online payment tools, clients sometimes assume that all healthcare-related purchases automatically qualify. Or they may use their debit cards to make other purchases, intentionally or not.
But the IRS rules remain specific.
Nonqualified distributions before age 65 are generally subject to ordinary income tax plus a 20 percent penalty tax.
That penalty tax often surprises HSA owners who mistakenly view their accounts as flexible spending vehicles, rather than tax-advantaged accounts governed by strict distribution requirements.
HSAs Become More Flexible After Age 65
The rules shift somewhat once an HSA owner reaches age 65.
At that point
qualified medical distributions remain tax-free,
nonqualified distributions avoid the 20 percent penalty tax, and
nonqualified distributions are still taxable as ordinary income.
In practice, this means an HSA can begin functioning somewhat similarly to a Traditional IRA for nonmedical expenses while still preserving unique tax-free treatment for healthcare costs.
That flexibility can be especially valuable during retirement income planning.
HSAs and Retirement Planning Conversations Naturally Fit Together
For financial organizations, HSAs can create a natural bridge between healthcare spending discussions and broader retirement planning conversations.
Clients may initially open HSAs for immediate tax savings or employer contributions. But many are unaware of the long-term planning opportunities attached to the account.
That creates opportunities for organizations to educate clients on the following.
Long-term contribution strategies
Investment options within HSAs
Retirement healthcare projections
Tax diversification
Distribution planning
Recordkeeping best practices
Education May Be the Biggest Opportunity
The challenge is not necessarily convincing clients that HSAs are valuable.
It is helping them understand how valuable they can be.
As healthcare expenses continue climbing and retirement planning grows more complex, HSAs may increasingly become one of the most underappreciated financial tools.
For financial organizations, helping clients understand that opportunity could be one of the most meaningful conversations they have.
