Health savings accounts (HSAs) have long been used to cover medical costs. They offer tax advantages on contributions, earnings, and withdrawals for qualified medical expenses. But when treated like a retirement account, they may also help build long-term retirement savings.

A growing number of Millennials are taking advantage of HSAs’ multiple benefits. They now hold 32% of all HSA accounts and are leading in how they use them: saving and investing instead of spending down balances.¹ In fact, in 2024, Millennials saved 47% of their HSA contributions rather than spending their balance — more than any other generation.²

Instead of viewing HSAs solely as short-term spending tools, many are putting them to work as a retirement vehicle. Saving and investing for the long-term in an HSA may yield benefits later in life — whether that’s paying off medical expenses or withdrawing for any expense after age 65. When used wisely, the benefits of an HSA can go beyond buying medical supplies and paying doctors’ bills: they may become a long-term asset for retirement planning. 

Read more: Medical FSAs: Use it or lose it time is here

Millennials go all-in

Millennials have been particularly receptive to HSAs. They were early adopters in 2018, with 75% of eligible Millennials under age 26 signing up for the first time.³ They’ve held onto their accounts as well: About a third of Americans in their 30s now have an HSA.⁴ The generation also leads the way with HSA balances nearing $4,400.^5,6

The rise in HSA adoption coincides with Millennials entering middle age and facing significant healthcare decisions, especially as medical costs have increased more than 30% since 2018.⁷

HSAs may support a broader retirement strategy. There is also a retirement tactic that comes with these accounts. The tax benefits of an HSA, along with the ability to invest untapped balances, have made these accounts more than just a way to pay for care — they may also serve as a vehicle for retirement savings with potential tax advantages. 

From prescriptions to portfolios

HSAs come with a triple tax advantage: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. This means that funding an HSA could be a retirement planning play, not just a way to pay for medical care.

Although HSAs are primarily tied to high-deductible healthcare plans (HDHPs), sometimes referred to as consumer-directed healthcare plans (CDHPs), they can also allow savers to prepare for future expenses with maximum efficiency. Every dollar saved may avoid income tax on the way in, capital gains tax while invested, and income tax on the way out — if used for qualified expenses. 

The tax edge is especially powerful when compared to other accounts. Traditional IRAs and 401(k)s offer upfront tax savings, but withdrawals in retirement are taxed as income. Roth IRAs allow for tax-free withdrawals, but contributions are made with after-tax dollars. HSAs offer both tax-deferred contributions and tax-free withdrawals for medical spending. No other account structure offers all three advantages at once.

Even if purchases aren’t strictly medical, after age 65, HSA funds can be used for any purpose without penalty (but are still subject to ordinary income tax).⁸ This makes HSAs comparably flexible to a traditional IRA, and they may offer lower tax liability at withdrawal (depending on usage).

Read more: What are the benefits of an HSA account?

Delayed reimbursement: A sleeper strategy

There’s another advantage that sets HSAs apart: timing. HSA funds don’t have to be withdrawn the same year an expense occurs. As long as receipts are saved, funds can be reimbursed for years or decades in the future. That means even health expenses from early in a career can be reimbursed, after the account’s investment balance has had time to grow. Then account holders can take tax-free withdrawals at a time that aligns with their retirement goals.

For example, someone who pays $2,000 in out-of-pocket medical bills in 2024 could keep that receipt and withdraw the same amount from their HSA tax-free in 2034, after ten years of investment gains. That flexibility gives HSAs a layer of long-range financial control that few other accounts can match.

HSAs, redefined by a new generation

What was once viewed as a niche healthcare tool is being recast as a multi-use financial asset. HSAs are helping savers hedge against rising medical costs while creating an additional retirement bucket that behaves like a turbocharged IRA — with better tax benefits and more options for how and when to use the funds.

HSAs are also diversifying how younger workers think about retirement. While 401(k)s and IRAs remain the core of most portfolios, some financial advisors now encourage clients to max out HSAs before contributing to a taxable brokerage account. For those who can afford to invest early and let it grow, the HSA delivers more tax efficiency than virtually any other account available.

With tax advantages, flexible investing, and long-term planning capabilities, HSAs are no longer just an add-on to pay for healthcare with a high-deductible plan. Younger workers are using them to build wealth from the ground up as a long-term retirement planning tool — but they’re not the only ones who can.