HSA + 401(k): Fuel your future

It’s fun to dream about your future and the lifestyle you want once you retire. But the real question is: How will you pay for it? Studies show that a couple can expect to spend $351,000 on health care in retirement,1 and those costs could put a dent in your retirement budget. Proactively saving for retirement health care expenses now could help you be prepared.

Planning for retirement: Two is better than one

To help you get your finances on track with your goals, consider a strategy of saving into not only one, but two tax advantaged2 accounts: A 401(k) account and a Health Savings Account(HSA).

An HSA and 401(k) both offer potential tax savings that allow the money you contribute to each account to grow tax-free to help increase your savings over time. But the key to this “two is better than one” strategy is understanding how these valuable benefits can work together to help your money go even further to support your retirement needs.

man and women hugging and laughing

Tax free growth

Any interest or earnings on your account are tax free, which could add up to more dollars to use toward qualified health expenses. This is just one reason why utilizing the investing feature of your HSA account could be an important component of your long-term financial plan.

Understanding how to use each account

The strategy is simple. In retirement, use your HSA funds for health care expenses, so you can preserve your 401(k) for lifestyle and other expenses.

Healthcare icon


Tax-free withdrawals

Pay for qualified health care expenses

Retirement icon


Taxable withdrawals

Preserve to support desired retirement lifestyle


If you were to take money out of your traditional 401(k) to cover your health care needs, you would be required to pay taxes on those distributions.

Let’s look at the numbers

To help you get a better idea of how this strategy can help you get the most from your retirement savings, consider this example: If you were to withdraw $351,000 from your traditional 401(k) to cover health care costs for you and your spouse during retirement, you could potentially owe about 20% of that amount in combined federal and state taxes. But if you were to withdraw funds from your HSA to pay for your qualified health care expenses, those distributions would not be subject to tax. In this example, it means you could potentially save more than $87,750 in taxes – money you could use instead to help fund your retirement dreams.

Bar chart illustrates how much more you would have to withdraw from your 401(k) account vs. your HSA to cover $351,000 in health care costs. This example shows you would have to withdraw $438,000 from your 401(k) account to cover taxes and only $351,000 from your HSA, since withdrawals for qualified expenses are not taxed.

Example is for illustrative purposes only. Assumes 20% combined federal and state tax rate in retirement. 401k distribution of $438,750 needed to cover taxes ($438,750 x 80% = $351,000). Bank of America and its affiliates do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

Take charge of your financial future

Understanding how your HSA and 401(k) work together can help you be proactive about saving money for your future. Start by taking a look at your overall savings strategy and then consider how you might take advantage of these two benefits. For your HSA, consider contributing up to the annual limit, or at least more than you plan to spend, to benefit from the tax savings and account growth opportunity. If your employer offers a 401(k), contribute at least enough to take advantage of any match they may offer, or up to the annual limit if you can.

  To learn more, view our Better Together video.

1 Employee Benefits Research Institute, Issue Brief, no. 599, January 18, 2024. A 65-year-old couple, both with median drug expenses needs $351,000 to have a 90% chance of having enough money to cover health care expenses (excluding long-term care) in retirement.

2 You can receive federal income tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax, unless an exception applies. Any interest or earnings on the assets in the account are federal income tax-free. You may be able to claim a tax deduction for contributions you, or someone other than your employer, make to your HSA directly (not through payroll deductions). In addition, HSA contributions may reduce your state income taxes in certain states. Certain limits may apply to employees who are considered highly compensated key employees. Bank of America [and Merrill] recommends you contact qualified tax or legal counsel before establishing an HSA.