Many Americans are missing out on a powerful retirement savings strategy.

Health Savings Accounts, which are designed to give people a tax break on money used to cover out-of-pocket healthcare costs, can be used to build a tax-free stash of money to fortify finances in retirement-yet few people are investing the money they hold in their accounts to accomplish this.

More than 40 million Americans have HSAs. They are available only to people with high-deductible health insurance plans and people with bronze and catastrophic plans through the Affordable Care Act. A high deductible for 2026 is defined as $1,700 for single coverage and $3,400 for family coverage.

While the number of workers contributing to HSAs increased to 83% of those eligible last year from 73.4% in 2024, only 22% of these folks are investing their assets to take advantage of tax-advantage growth, according to a study by the Plan Sponsor Council of America.

"In 2024 the percentage investing was 20.3%. We're seeing the numbers go up, but there is still a lightbulb that has to go off with a lot of people," says Ann Brisk, senior managing director at HSA Bank.

HSA accounts pack a triple-tax benefit. Contributions are pretax, assets grow tax deferred, and savings can be taken out tax-free if used to cover healthcare costs. If withdrawals are used for non-healthcare costs, income taxes are owed as they would be with a 401(k) and, if you are under age 65, you face a 20% penalty.

Maximum HSA contributions are $4,400 for someone with a health plan with single coverage, and $8,750 for someone with family coverage. Folks aged 55 or older who aren't enrolled in Medicare can contribute an extra $1,000. In 2027, limits rise to $4,500 and $9,000 respectively.

The basic function of an HSA is to allow you to use pretax money for healthcare costs not covered by insurance, ranging from over-the-counter medications and eyeglasses to dental care and Medicare Medicare part A, B, C and D premiums.

Paying pretax provides significant savings: If your income is taxed at 32% and you face a $2,000 bill, it requires $2,942 in pretax earnings to cover the cost.

If you use HSA assets, the $2,000 bill costs you exactly that much because your money went into the account pretax, and comes out tax-free.

But you can get more out of your HSA, says Dan Pascone, founder and CEO of Tailored Wealth in Fairfield, Connecticut.

Rather than using HSA funds to pay costs as they arise, consider investing HSA assets as you would in an IRA, either in mutual funds, ETFs or individual stocks, and as you incur healthcare costs, pay for them with after-tax dollars and save your receipts.

Many years later, after allowing your money to grow, you can reimburse yourself for years of expenses by taking money out of your HSA tax-free.

"You can use the money you've withdrawn as a reimbursement for whatever you want, as long as you have the receipts," Pascone says.

Consider a 45-year-old couple whose out of pocket healthcare costs amount to $4,000 a year. The couple ensures that $4,000 is socked into an HSA each year so they can cover those costs with pretax money.

At the end of each year, their HSA account is drawn to zero.

Once enrolled in Medicare, HSA contributions aren't permitted. By then, the couple will no longer have tax-free money to cover expenses.

Now assume that this couple lets the $4,000 annual contribution to their HSA grow tax-deferred.

Over the next 20 years, the couple collects receipts for all healthcare expenses they have paid with after-tax dollars.

By age 65, assuming an average annual 7% return, the couple's HSA will have grown to $170,000.

Assuming they paid $4,000 a year out of pocket for 20 years-for a total of $80,000-and have receipts to prove it, they can reimburse themselves by pulling $80,000 out of their HSA tax-free.

The remaining $90,000 HSA balance can be withdrawn tax-free to pay further healthcare costs in retirement.

The total could be significantly higher if the couple contributed the maximum allowable each year-the threshold rises with inflation-along with an extra $1,000 a year beginning at age 55.

"This can give you a substantial war chest to pull from in retirement to cover costs not covered by Medicare, to make sure you aren't draining your IRAs or other accounts," says Brian Colvert, CEO of Colorado Springs-based Bonfire Financial. "The biggest costs I see not covered by Medicare are for dental work. Root canals, implants. Those aren't cheap."

If you want to invest HSA assets, dig into account details. Most HSAs allow investing in ETFs and mutual funds. Not all permit investments in individual stocks.

Some accounts charge annual fees of up to $50 a year and up to 0.5% of assets.

Some HSAs require a minimum, typically up to $2,000, be held in cash.

If you have an employer-sponsored HSA that is restrictive or has high fees, you can roll your money into an account offered by an independent provider with better terms. Major providers are Fidelity Investments, Lively, HealthEquity and HSA Bank.

Long-term investing in an HSA isn't for everyone-typically only folks with higher income or low healthcare expenses have the luxury to leave their money intact to grow, Colvert says.

"But if you can't invest 100% of the money, try investing some," he says. "The longer it grows the more advantageous it will be in the future."

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