Open enrollment offers chance to build tax-free retirement fund through health savings accounts

Open enrollment season has begun for many workers, presenting a specific opportunity to direct funds into health savings accounts, or HSAs, for long-term growth rather than immediate medical bills. Financial planners suggest that these accounts function as powerful investment vehicles when paired with high-deductible health insurance plans.

John Bell, a certified financial planner and founder of Free State Financial Planning, describes HSAs as "sneaky-good and very underrated" tools for wealth building. He typically advises clients to prioritize maxing out an employer-sponsored HSA immediately after securing their full 401(k) match. In his hierarchy, this move takes precedence over funding a Roth IRA or opening a taxable brokerage account.

The tax structure of an HSA provides what Robert Persichitte, a CFP and CPA at Delagify Financial, calls a "triple tax advantage." Contributions are made with pre-tax dollars, investment gains grow without taxation, and withdrawals for qualified medical expenses remain tax-free. This combination allows the account to function similarly to both traditional and Roth IRAs simultaneously.

Despite these benefits, most account holders do not invest their funds. According to Devenir, an HSA research and investment firm, only 11% of HSAs held investments as of midyear 2026. The remaining majority typically keeps the money in cash, foregoing the potential for compound growth over decades.

Eligibility requires enrollment in a high-deductible health plan. For the 2027 plan year, the minimum deductible is $1,750 for individual coverage and $3,500 for family coverage. While flexible spending accounts, or FSAs, offer similar pre-tax medical spending, they generally require users to spend the funds within the calendar year. HSAs, by contrast, allow unspent balances to roll over indefinitely and remain with the employee if they change jobs.

Contribution limits for 2027 are set at $4,500 for self-only coverage and $9,000 for family coverage. Individuals aged 55 and older may contribute an additional $1,000. Employer contributions count toward these annual limits. Workers who purchase their own insurance can also open an HSA if their Bronze or Catastrophic marketplace plan qualifies, though employer-sponsored plans often offer additional benefits like employer contributions and payroll tax savings on Social Security and Medicare.

Corinna Rose, a CFP at Bell Investment Advisors, notes that healthcare is a guaranteed expense in retirement. Fidelity Investments estimates that a 65-year-old retiring in 2026 will spend an average of $185,500 on healthcare and medical expenses over the course of their retirement. Keeping HSA funds invested until age 65 allows the balance to grow while preserving a dedicated pool for these inevitable costs.

Users can also reimburse themselves for past qualified medical expenses without a time limit. Persichitte used this strategy after breaking his arm, waiting three years to withdraw the funds tax-free, which allowed the money to remain invested during that period. However, non-medical withdrawals before age 65 trigger income tax and a 20% penalty tax, a rule that disappears after 65.

Michael Schramm, a CFA charterholder and author of the forthcoming book "Emotional Finance," cautions against choosing a high-deductible plan solely for the HSA. He advises comparing premiums, deductibles, and out-of-pocket maximums across available plans. Workers should ensure they have emergency savings to cover higher upfront costs without taking on debt.

Stocks and bonds within an HSA carry market risk, so money needed for immediate medical bills is often better held in cash. For those who can afford to leave the balance untouched, the account serves as a dual-purpose tool for medical expenses and retirement savings.