HSA vs. 401(k): What's the Difference?

Health savings accounts (HSAs) and 401(k) accounts are both savings vehicles that offer substantial tax benefits for people planning for retirement. Beyond that, there are significant differences between the two. HSAs are narrowly focused on paying for costs related to healthcare to preserve their tax advantages. Funds in 401(k) accounts can be used for any purpose or cost a retiree may encounter. HSAs and 401(k)s are both used by many retirement savers, because of the different benefits they offer. A financial advisor can help you think through your choices when it comes to investing and planning for retirement.

What Is an HSA?

HSAs became legal in 2004 after the U.S. Congress passed enabling legislation the year before. HSAs were intended to give people who weren’t members of Medicare some of the same tax benefits provided by medical savings accounts (MSAs) for enrollees in high-deductible Medicare Advantage plans.

HSAs offer exceptional tax advantages. To begin with, funds deposited by HSA accountholders are deducted from income, reducing their taxes for that year. In addition, returns earned from investing the funds in the accounts accumulate tax-deferred. Finally, withdrawals from HSA accounts are not taxable, as long as they are used for qualified medical expenses.

HSAs follow consistent IRS rules for documentation. Account holders are responsible for keeping receipts and records that show distributions were used for qualified medical expenses, were not reimbursed, and were incurred after the HSA was opened.

The HSA provider does not verify or collect these records, but you must retain them in case the IRS asks for proof when you file Form 8889 or during an audit. If you cannot show that a withdrawal was for a qualified expense, the amount is taxable and may be subject to an additional 20% tax unless an exception applies.

Only members of high-deductible health insurance plans (HDHPs) can have HSAs, but not all employer-sponsored HDHPs have HSAs. The good news, though, is that any HDHP member can set up an HSA. The employer doesn’t need to offer one. HSAs can be opened at many banks.

What Is a 401(k)?

The tax code was amended in 1978 to enable 401(k) accounts. Since then, 401(k)s have become the most popular type of retirement account for private-sector employees. Other 401(k)-like accounts include 457 plans for public-sector workers and 403(b) plans for employees of nonprofits.

Tax deferral gives the 401(k) its appeal. Your contributions to the account are subtracted from your taxable income. In addition, earnings on investments made with funds in the account also escape taxation as current income.

Taxes only get levied when 401(k) account holders withdraw funds. This tax deferral can present significant savings, especially if the account holder’s income is lower, as is typical in retirement. However, if an account holder withdraws funds before age 59 ½, taxes as well as a 10% penalty get charged (unless an exception applies).

IRS Rules for HSAs and 401(k)s

HSAs are only available to people with high-deductible health plans (HDHPs), which in 2025 must have minimum deductibles of $1,650 for individuals and $3,300 for families.

The main catch to HSAs is that they are only available to people enrolled in HDHPs. The IRS sets the requirements for qualifying HDHPs, adjusting them for inflation every year or two. For 2025, the minimum deductible to qualify as an HDHP is $1,650 for individuals and $3,300 for families (up from $1,600 and $3,200, respectively, 2024).

The IRS also caps out-of-pocket expenses for qualifying HDHPs. Out-of-pocket expenses include deductibles, copayments and coinsurance, but don’t include out-of-network expenses and premiums paid. For 2025, the out-of-pocket cap is $8,300 for individuals and $16,600 for families (up from $8,050 and $16,100 for families, respectively, in 2024).

In addition to specifying deductibles, the IRS limits the amount you can contribute to your HSA. This figure also adjusts for inflation every couple of years. For 2025, individuals can contribute up to $4,300 and families can contribute up to $8,550 (up from $4,150 and $8,300, respectively, in 2024). Also, some employers make HSA contributions for employees and these employer contributions also count against the cap.

One more HSA restriction involves qualifying medical expenses. The IRS defines qualifying medical expenses as anything that can be deducted as a medical expense on a tax return. These include many costs not covered by health insurance, including dental and vision. IRS Publication 502 has details on qualifying expenses.

For 401(k)s, the IRS limits the amount account holders can deposit. The caps are periodically adjusted to reflect inflation. For 2025, the maximum amount is $23,500. In 2024 the limit was $23,000. People over age 50 can contribute an additional $7,500 in 2025, which was the same in 2024.

However, starting in 2025, 401(k) participants between 60 and 63 years old can contribute an extra $11,250, instead of the standard $7,500. This gives them the ability to save up to $34,750 in 2025.

Employers may choose to match employee contributions, typically only up to a certain limit. These employer contributions don’t count towards the annual 401(k) employee contribution cap.

Owners of pre-tax 401(k) accounts must begin making withdrawals after reaching age 73 (75 for those born in 1960 or later). The IRS specifies the amounts of these required minimum distributions (RMDs) using a calculation that’s based on the account value on Dec. 31 of the previous year. Failing to take accurate RMDs exposes a 401(k) account holder to penalties of up to 25% of the amount that should have been withdrawn. The penalty may be reduced to 10% if the RMD is corrected within two years.

Comparing HSAs and 401(k)s

The triple-tax advantage of a health savings account (HSA) makes it highly efficient for managing healthcare-related costs, while a 401(k) offers more flexibility for general retirement spending. HSA withdrawals are tax-free only when used for qualified medical expenses, while 401(k) withdrawals can fund any type of retirement expense but are taxed as ordinary income. This distinction means the two accounts serve different purposes within a retirement plan.

Another key difference involves required withdrawals. A 401(k) requires required minimum distributions (RMDs) starting at age 73, or 75 for those born in 1960 or later. HSAs have no RMDs, allowing funds to remain invested until they are needed for healthcare. However, HSAs are only available to individuals covered by HDHPs. While HDHPs can reduce monthly premiums, they also increase potential out-of-pocket costs for people with frequent medical needs.

Access and contribution rules also differ. HSAs can be opened by anyone with an HDHP, even without employer involvement, while 401(k) plans are available only through participating employers. For 2025, contribution limits are $4,300 for individuals and $8,550 for families in HSAs, and $23,500 for 401(k)s, plus additional catch-up contributions for older participants. These accounts are not mutually exclusive—individuals with access to both an HDHP and a 401(k) can contribute to each, combining healthcare savings with broader retirement investing.

When to Prioritize an HSA vs. a 401(k)

Choosing whether to fund an HSA or a 401(k) first depends on your financial goals and available benefits. If your employer offers a 401(k) match, it generally makes sense to contribute enough to receive the full match before directing funds elsewhere, since the match represents guaranteed returns that few other savings options can match. After securing the match, contributing to an HSA can be advantageous because it offers deductible contributions, tax-deferred growth and tax-free withdrawals for qualified medical expenses.

An HSA can be especially useful if you expect significant healthcare costs in retirement, since withdrawals for qualified medical expenses are not taxed. After age 65, you can use HSA funds for non-medical purposes as well, though those withdrawals are treated as ordinary income, similar to 401(k) distributions. This gives the HSA more flexibility later in life while maintaining its healthcare advantages for retirees with ongoing medical expenses.

A balanced approach can be effective. Contribute to the 401(k) up to the match, then maximize HSA contributions if you qualify, and allocate additional savings to the 401(k). This approach combines short-term benefits with long-term tax efficiency and allows both accounts to work together in covering future healthcare and general retirement costs.

Bottom Line

HSAs and 401(k)s offer different tax advantages, but using both together can help fund healthcare and general retirement expenses more efficiently.

HSAs and 401(k)s represent two different approaches to tax-advantage saving for retirement. However, both accounts can be used together as part of an overall retirement savings strategy. HSAs focus on health costs and funds in the accounts can be spent on qualifying health costs before or after retirement without incurring taxes or penalties. Rigid rules on 401(k) withdrawals mean funds deposited to these accounts are effectively locked up until age 59 ½.

Tips on Retirement Planning

Combining 401(k) accounts with HSA accounts calls for careful evaluation of an individual’s financial, tax and health situation. This decision can benefit from the assistance of a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you are considering planning for retirement, SmartAsset’s retirement calculator can help you estimate how much you will need to retire comfortably.