Summary
Yes, you can withdraw from a Health Savings Account (HSA) in retirement, and the way those withdrawals are taxed may depend on how the money is used. Funds used for qualified medical expenses can generally be withdrawn without federal income tax, while withdrawals for non-medical purposes after age 65 may be taxed as regular income without the earlier penalty that applies to younger account holders. 1
Health Savings Accounts are often associated with paying for current healthcare costs, but they may also play a role later in life. Understanding how withdrawals work after retirement can help clarify how this account type fits into a broader retirement income picture.
How HSA Withdrawals Work After Age 65
Once you reach age 65, HSA withdrawal rules become more flexible compared with earlier years.
An HSA can continue to be used for qualified medical expenses during retirement. These expenses may include items such as deductibles, copayments, prescription medications, and certain long-term care costs. Withdrawals for these purposes are typically not subject to federal income tax, according to the IRS guidance on Health Savings Accounts.¹
Some retirees may use HSAs for a variety of healthcare-related costs. Examples may include:
- Dental or vision care that Medicare may not fully cover
- Qualified long-term care services or insurance premiums
- Prescription drugs and medical equipment
After age 65, withdrawals used for non-medical expenses may also be allowed. Instead of facing the additional 20% penalty that applies before age 65, the amount withdrawn may simply be treated as taxable income.2 This structure makes HSAs function somewhat similarly to traditional retirement accounts when funds are used outside healthcare spending.
Potential Uses for HSA Funds in Retirement
HSAs can serve as a flexible account for healthcare spending during retirement.
Healthcare costs may increase with age, which is one reason some retirees consider maintaining HSA balances. According to a Yahoo Finance report on Fidelity Investments’ 2025 estimate, a 65-year-old retiring that year may expect to spend about $172,500 on healthcare and medical expenses throughout retirement.3
Another factor is that HSAs may continue growing over time if invested. Some individuals allow the account to accumulate for years and reimburse themselves later for qualified expenses. NerdWallet explains that unused HSA funds can roll over each year rather than expiring, which can allow balances to build over time.³
Below is a simplified comparison of how HSA withdrawals may be treated in retirement:
| Withdrawal Type | Possible Tax Treatment | Notes |
| Qualified medical expenses | Typically not subject to federal income tax | Applies at any age if expenses qualify |
| Non-medical withdrawals after age 65 | May be taxed as ordinary income | No additional penalty after 65 |
| Non-medical withdrawals before age 65 | Income tax plus potential 20% penalty | Applies unless an exception exists |
Because retirement healthcare costs may vary from person to person, some individuals view HSAs as one part of their long-term financial planning.
If you would like to learn more about how accounts like HSAs may fit into retirement planning, contact Vantage Point to start a conversation about your options and how planning strategies can help you help you live retirement boldly and on your terms.
FAQ
1. What is a Health Savings Account (HSA)?
An HSA is a tax-advantaged savings account designed for individuals enrolled in a high-deductible health plan. Funds may be used for qualified medical expenses. 2
2. Do HSA funds expire at the end of the year?
No. Unused funds typically roll over each year and may remain in the account indefinitely. 2
3. Can you use HSA money for Medicare premiums?
In many cases, HSA funds may be used to pay certain Medicare premiums, though rules may vary depending on the specific part of Medicare. 2
4. What happens if you withdraw HSA funds for non-medical expenses before age 65?
The withdrawal may be subject to ordinary income tax and an additional 20% penalty unless an exception applies.2
5. Who is eligible to open an HSA?
To contribute to an HSA, you generally must be enrolled in a high-deductible health plan (HDHP). These plans must meet specific deductible and out-of-pocket limits set by the IRS each year. 2
Citations
- Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans, IRS, Accessed March 6, 2026, https://www.irs.gov/publications/p969
- How Does an HSA Work?, NerdWallet, Accessed March 6, 2026, https://www.nerdwallet.com/insurance/health/learn/what-is-an-hsa
- Fidelity Investments Releases 2025 Retiree Health Care Cost Estimate, a Timely Reminder for All Generations to Begin Planning, Yahoo Finance, Accessed March 9, 2026, https://finance.yahoo.com/news/fidelity-investments-releases-2025-retiree-123000341.htmlF
Investment advisory services are offered through Vantage Point Financial, a registered investment adviser. Registration with any regulatory body does not imply any particular level of skill. This material is provided for informational purposes only and should not be construed as investment, tax, or legal advice. Working with a financial planner does not ensure financial success or prevent loss. All investments involve risk, including the possible loss of principal. Past performance does not guarantee future results. The scenarios presented are hypothetical and are intended for illustrative purposes only. They do not reflect actual client results and are not guarantees of future outcomes. Individual results will vary. Certain financial strategies may offer tax advantages, but outcomes depend on individual circumstances and are subject to change due to tax laws and other external factors. Vantage Point Financial does not provide legal or tax advice. Consult a tax professional. Retirement outcomes depend on a variety of factors, including individual savings behavior, market performance, health events, and other considerations. Certain statements herein may reflect the firm’s current views, expectations, or beliefs, which are subject to change without notice. For additional information about our services, fees, and disclosures, please refer to our Form ADV Part 2A, available at https://vantagepoint-financial.com or upon request at no cost.
