A recent analysis reveals that accumulating $1 million in specialized health savings accounts (HSAs) for retirement is indeed achievable, although it’s accompanied by significant caveats.
To make this a reality, you’ll need to start early, consistently contribute the maximum amount annually, and refrain from drawing any funds for medical expenses, leaving your savings untouched for many years.
Health savings accounts, or HSAs, allow individuals to reserve pretax funds specifically for health care expenses. To qualify for an HSA, you must be enrolled in a health plan with a high deductible, which means you’ll need to cover a certain amount out of pocket before insurance kicks in. The beauty of these accounts lies in their tax advantages: your savings can grow tax-free, and withdrawals remain untaxed if they’re used for eligible medical expenses. However, while the federal government doesn’t tax these accounts, some states do levy taxes on them.
Thanks to their notable tax benefits, HSAs are immensely valued as a tool for saving towards future health expenses, especially those not covered by Medicare, the federal health program dedicated to older Americans. Interestingly, after reaching the age of 65, you’re allowed to use HSA funds for non-medical expenses without facing penalties, although such withdrawals are subject to regular income tax.
The Employee Benefit Research Institute, a nonprofit organization, recently completed an analysis suggesting a pathway to this million-dollar goal. They assumed a person begins at age 25, contributing the maximum allowable amount each year ($4,300 projected for an individual in 2025, with an extra $1,000 annual allowance for those 55 and older, adjusted yearly for inflation), continuing contributions without any withdrawals until age 64. The assumption here is an annual investment return of 7.5%.
Naturally, lower investment returns or shorter saving periods would yield lower totals. For instance, at a 5% return, the savings could reach about $540,000 after 40 years; at 2.5%, you’re looking at around $298,000. On average, individuals might require savings ranging from $165,000 to $184,000 to cover health expenses in retirement, but this varies based on health status and the type of Medicare or other coverage they have.
The major hurdle in achieving substantial savings in an HSA is contributing the maximum each year and abstaining from using the funds for four decades, instead covering any medical costs with other means. Many account holders treat HSAs like checking accounts, using them for immediate expenses rather than long-term savings. In 2023, Devenir, an HSA investment firm, noted that 47% of funded HSAs had seen withdrawals, and by mid-2024, only 9% of accounts had any portion invested.
Paul Fronstin, the director of health benefits research at the Employee Benefit Research Institute and part of the analysis team, emphasized the potential for HSAs when used fully—though he cautioned that not everyone could follow this route.
He remarked, “For the average person, it might not be feasible. You need sufficient funds to maximize contributions, which many people lack.”
Critics argue that HSAs largely benefit wealthier individuals who can manage out-of-pocket expenses while investing their contributions. Over 20 years since HSAs first emerged, there are about 38 million accounts holding over $137 billion as of mid-2024, according to Devenir.
Andrea Ducas, vice president of health policy at the Center for American Progress, pointed out that the rise of high-deductible health plans strains many workers financially, noting, “With less than $400 in savings and a $5,000 deductible, what real protection does your health coverage provide?”
The number of people enrolled in HSA-eligible, high-deductible plans in 2024, rose to 21% from 14% a decade earlier, based on research by KFF, a nonprofit health care research group. Still, studies show many enrolled aren’t leveraging these accounts for health savings.
Despite this, there are legislative efforts aiming to widen HSA availability. A Republican-backed bill reintroduced in January aims to expand eligible insurance plans for HSAs and increase contribution limits to better match potential out-of-pocket costs.
The Tax Foundation has suggested doing away with HSA tax breaks in favor of universal savings accounts, which could be used for various purposes without penalties. These accounts could mimic Roth IRAs, offering tax-free withdrawals under certain conditions. The foundation argues these accounts are more flexible and fiscally responsible, potentially simplifying the convoluted landscape of tax-advantaged savings.
In January, a draft of House Republican proposals for funding a tax cut included replacing HSAs with universal accounts. However, Alex Cyriac, CEO of Lively, a fintech company offering HSAs, downplayed the likelihood of this happening, saying, “Given their prevalence, the chances of HSAs being eliminated are quite slim.”
Another bipartisan bill proposes creating Roth-like accounts for health expenses, catering to those with lower or no deductible plans, similar to HSAs.
Let’s address some common questions about HSAs:
-
Can I take my HSA with me if I change jobs?
Absolutely. Unlike other workplace health spending options, HSAs are portable, and there’s no deadline for when the funds must be used. -
What is the minimum deductible for an HSA health insurance plan?
For 2025, eligible HSA plans must have at least a $1,650 deductible for individual coverage and $3,300 for families. - What is the contribution deadline for HSAs for 2024?
Contributions for 2024 can be made until that year’s tax filing deadline, typically April 15 (extensions in federal disaster areas apply). The maximum contributions are $4,150 for individuals and $8,300 for families, with an additional $1,000 allowed for those 55 and older.
