Understanding HSAs, FSAs, and Retirement
Nate Moody, CPFA – RETIREMENT ADVISOR, PARTNER
June 2025
When it comes to supporting employees’ financial well‑being, retirement plans often take center stage. But health‑related savings vehicles like Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are playing an increasingly important role in the broader conversation. As healthcare costs continue to rise and financial stress impacts employee productivity, these accounts have become key tools in helping people manage today’s expenses while planning for tomorrow’s needs.
For employers, understanding how HSAs and FSAs interact with your retirement plan strategy can strengthen your benefits offering and help employees make smarter decisions across the board.
What’s the Difference?
At a high level, both HSAs and FSAs allow employees to set aside pre‑tax dollars for qualified healthcare expenses. But the similarities mostly stop there.
FSAs are use‑it‑or‑lose‑it accounts typically tied to a plan year. Funds must generally be spent within the year (or within a short grace period), and they’re owned by the employer, not the employee. They offer flexibility in paying for routine expenses like prescriptions, copays, and childcare, but they don’t build long‑term value.
HSAs, on the other hand, are triple tax‑advantaged. Contributions are tax‑deductible, grow tax‑free, and can be withdrawn tax‑free for qualified medical expenses. They are only available to participants enrolled in a high‑deductible health plan (HDHP). Unlike FSAs, HSA funds roll over year to year and remain with the employee. Over time, they can grow into a powerful supplemental retirement account.
2025 IRS Contribution Limits
- HSA limits: $4,300 for self‑only coverage; $8,550 for family coverage; individuals age 55 or older may contribute an additional $1,000 catch‑up1
- HDHP parameters: minimum deductible of $1,650 (self‑only) or $3,300 (family); out‑of‑pocket max of $8,300 (self‑only) or $16,600 (family)1
- Health‑care FSA limit: $3,300 annual contribution, with up to $660 carryover to the next plan year2
HSAs as a Retirement Savings Vehicle
Many employees overlook the long‑term potential of HSAs. They often treat them as a short‑term medical fund rather than a retirement savings tool. You have the ability to invest HSA balances and use them in retirement for out‑of‑pocket healthcare expenses or even for general expenses after age 65 (subject to income tax). These accounts offer a unique planning opportunity.
From a retirement readiness standpoint, the HSA is one of the most underutilized tools available. Industry data suggests a 65‑year‑old couple retiring today can expect to spend nearly $350,000 on healthcare over the course of retirement.3 HSAs provide a tax‑efficient way to plan for those expenses without tapping into traditional 401(k) or IRA savings.
Helping Employees Make Smarter Choices
As an advisor, I often see a disconnect between benefit offerings and employee understanding. Many employees don’t know the difference between HSAs and FSAs or how to prioritize saving when allocating limited dollars.
Here’s a simple ‘waterfall’ framework we sometimes share:
- If eligible for an HSA and you can afford it, contribute enough to cover your deductible.
- Maximize employer 401(k) matching contributions.
- If possible, contribute additional funds to the HSA and invest for the long term.
- Use FSAs for dependent care or predictable medical expenses.
Plan Sponsors can help by incorporating education on these accounts into open enrollment, onboarding, and financial wellness efforts. Aligning health benefits and retirement messaging makes it easier for employees to think holistically and increases the overall value they derive from both programs.
Bringing It All Together
HSA and FSA offerings shouldn’t live in isolation. They’re part of a larger financial picture that includes retirement savings, health insurance, emergency preparedness, and long‑term care planning. As more employers move toward integrated financial wellness strategies, connecting the dots between health and retirement is a smart place to start.
At Lebel & Harriman, we help employers take a holistic approach to their benefit programs: for compliance and for impact. Helping employees understand these accounts and how to use them effectively is one more step toward building a healthier, more financially secure workforce.
Securities Disclosure: Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Investment Advisory Services offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor. | 130 Springside Drive, Suite 300, Akron, OH 44333-2431 | Telephone: (800) 765-5201 | Lebel & Harriman, LLP and Lebel & Harriman Retirement Advisors are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc.
