You can use a health savings account like a debit card. A copay here, a prescription there. That still saves tax, Laura Saunders writes in the Journal's Tax Report. But the bigger prize goes to people who can leave the money alone. The HSA is tax-free three times. Money goes in tax-free. It grows tax-free. It comes out tax-free for medical bills. She calls it a tax trifecta.
The accounts keep spreading. There were nearly 43 million HSAs as of June 30, up from about 32 million at the end of 2021, by the count of Devenir, an HSA consulting firm. The catch is the insurance. An HSA has to pair with a high-deductible health plan. For 2027 the deductible starts at $1,750 for one person and $3,500 for a family. The out-of-pocket maximum is $8,700 and $17,400. You or your employer, or both, can put in up to $4,500 for one person or $9,000 for a family in 2027. At 55 and up you can add $1,000 more.
The trick Saunders describes is patience. Pay the small bills out of pocket if you can. Let the HSA money stay invested. Keep the receipts, because you can pay yourself back later, even decades later. Nearly five million accounts invest their money, and the average invested account held nearly $24,000 recently. The list of costs that qualify runs far past what insurance covers. It stretches from Medicare premiums to a guide dog to a home change for a disability. The full list is in IRS Publication 502.
What changes at 65, and at death
Once you enroll in Medicare, usually at 65, you can't contribute any more. That's true even if you keep working. A recent bid to change that failed. But the money already in the account gets more useful. Tax-free withdrawals can pay Medicare premiums and copays, including the IRMAA surcharge that higher earners pay. The one exception is Medigap premiums. Those can't be reimbursed. After 65 you can also take money out for any reason, but then it's taxed as ordinary income.
The estate rule is the one people miss. Only a spouse can inherit an HSA tax-free, and you have to name them as beneficiary. A charity can inherit it tax-free too. Anyone else gets a terminated account and an income-tax bill. Those heirs do get one year to claim the owner's unpaid medical receipts tax-free. And new since 2026, HSAs can pair with ACA Bronze and Catastrophic plans. That helps self-employed workers and early retirees bridging to Medicare.
Our read
This is Tax and Health Costs, with a piece of Estate. A common order of operations is simple. Take the 401(k) match first. Then fill the HSA before the rest of the 401(k), because money it pays out for medical bills is never taxed. Pay small bills from checking. Invest the HSA balance and leave it for the Medicare years. Roy Ramthun, an HSA specialist quoted in the story, calls these accounts “the most tax-efficient way to save for healthcare expenses during retirement.” We agree. For our public-employee readers, check this open enrollment whether your district or agency offers an HSA-eligible plan at all. Not all do.
Here's the check for this week. Log in to your HSA and look at two things. First, see whether the balance sits in cash or is invested. Second, find the named beneficiary. If it lists your kids, or nobody, the account ends at your death and income tax comes due. If you're married, naming your spouse fixes that in a few minutes. Then bring the statement to your next review, and we'll fit it into the rest of your retirement plan.