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There are a grand total of 13 states that don’t tax retirement income, and nine of those states don’t tax income at all. This can be important for seniors to know, as holding onto as much retirement income as possible can be important — whether it’s coming from pensions, Social Security, a 401(k), or elsewhere.

Equally important to know: As of December 2025, there are 15 states that don’t tax pensions, and 41 states — plus the District of Columbia — that don’t tax Social Security benefits. Paying less in taxes can lower the strain on a retiree’s budget and help their money last longer. That becomes especially important when and if inflation shrinks purchasing power — as it has in recent years.

How Much Can State Taxes Take Out of Retirement Income?

Each state taxes income, including retirement income, differently. So, there are different states that don’t tax pensions, and then there are states that don’t tax Social Security, etc.

Accordingly, how much of a bite state taxes take out of retirement income can depend on several factors, including the applicable tax rate where you live, and your specific tax brackets.

Taxes can be an important consideration when choosing where to retire, and when to retire.

Getting your financial house in order is also important. A money tracker app can give you a bird’s eye view of your finances and help you keep tabs on where your money is coming and going.

Understanding State Income Tax

As of December 2025, 41 states levy taxes on wage and salary income, while nine states do not assess individual income tax. Washington taxes capital gains for certain high-income individuals.

In some states, the same tax rate applies to all taxable income. Other states use a graduated tax system with individual tax brackets, similar to the way the federal tax system works.

California has the highest marginal tax rate, at 13.30%. Other states with higher tax rates include Hawaii (11.0%), New York (10.90%), New Jersey (10.75%), and Oregon (9.90%). Aside from the states that have no income tax, the lowest marginal tax rate belongs to North Dakota and Arizona, which both have an income tax rate of 2.50%.

Further, if you were to look at the average retirement savings by state, it may help provide some more insight into where many retirees live — and why.

15 States That Don’t Tax Pensions

Altogether, there are 15 states that don’t tax federal or private pension plans. Some of these are states that have no income tax at all; others have provisions in state law that make them states with no pension tax. Here are which states don’t tax pensions:

State	Pension Tax Policy
Alabama	Pension income excluded from state income tax
Alaska	No state income tax
Florida	No state income tax
Hawaii	Qualifying pension income excluded from state tax
Illinois	Pension income excluded from state tax
Iowa	Qualified pension income excluded from state tax
Mississippi	Pension income excluded from state tax
Nevada	No state income tax
New Hampshire	Pension income excluded from state tax
Pennsylvania	Pension income excluded from state tax
South Dakota	No state income tax
Tennessee	No state income tax
Texas	No state income tax
Washington	Only taxes capital gains for high-income earners
Wyoming	No state income tax

Keep in mind that state or local government employee pension benefits may be treated differently. New York, for example, specifically excludes pension benefits paid by state or local government agencies from state income tax. If you move to another state, however, that state could tax your New York pension benefits.

41 States That Don’t Tax Social Security

Understandably, many people have questions about Social Security, including whether the program will remain solvent in the future. Another big one: How will taxes affect your benefit amount? That’s why it’s important to know which states don’t tax Social Security.

The good news is that 41 states and the District of Columbia do not tax Social Security benefits. In 2026, West Virginia will begin phasing out its tax on Social Security benefits. For 2026 tax returns (filed in 2027), benefits will be completely exempt.

So if you’ve chosen to retire, or at least are thinking about choosing a retirement date (which can affect your total Social Security payouts), you don’t need to worry about it. Similar to the states that don’t tax pensions, these states either have no income tax at all, offer exemptions, or have elected to exclude Social Security benefits from taxable income calculations.

State	Social Security Tax Policy	State	Social Security Tax Policy
Alabama	Not included in income tax calculations	Missouri	Not included in income tax calculations
Alaska	No state income tax	Nebraska	Not included in income tax calculations
Arizona	Not included in income tax calculations	Nevada	No state income tax
Arkansas	Not included in income tax calculations	New Hampshire	Not included in income tax calculations
California	Not included in income tax calculations	New Jersey	Not included in income tax calculations
Delaware	Not included in income tax calculations	New York	Not included in income tax calculations
Florida	No state income tax	North Carolina	Not included in income tax calculations
Georgia	Not included in income tax calculations	North Dakota	Not included in income tax calculations
Hawaii	Not included in income tax calculations	Ohio	Not included in income tax calculations
Idaho	Not included in income tax calculations	Oklahoma	Not included in income tax calculations
Illinois	Not included in income tax calculations	Oregon	Not included in income tax calculations
Indiana	Not included in income tax calculations	Pennsylvania	Not included in income tax calculations
Iowa	Not included in income tax calculations	South Carolina	Not included in income tax calculations
Kentucky	Not included in income tax calculations	South Dakota	No state income tax
Louisiana	Not included in income tax calculations	Tennessee	No state income tax
Maine	Not included in income tax calculations	Texas	No state income tax
Maryland	Not included in income tax calculations	Virginia	Not included in income tax calculations
Massachusetts	Not included in income tax calculations	Washington	Not included in income tax calculations
Michigan	Not included in income tax calculations	Washington, D.C.	Not included in income tax calculations
Mississippi	Not included in income tax calculations	Wisconsin	Not included in income tax calculations
		Wyoming	No state income tax

Montana and New Mexico do tax Social Security benefits, but with modifications and exceptions.

9 States That Don’t Tax Capital Gains

Federal capital gains tax applies when an investment or asset is sold for more than its original purchase price. The short-term capital gains tax rate applies to investments held for less than one year. Investments held for longer than one year are subject to the long-term capital gains tax.

States can also tax capital gains, though not all of them do. The states that do not tax capital gains are the same states that do not have income tax or have special tax rules on which income is taxable. As of 2026, they include:

•   Alaska

•   Florida

•   Missouri

•   Nevada

•   New Hampshire

•   South Dakota

•   Tennessee

•   Texas

•   Wyoming

As far as how much capital gains are taxed at the state level, the tax rate you’ll pay will depend on where you live. Some states offer more favorable tax treatment than others for capital gains.

13 States That Don’t Tax 401(k), TSP, or IRA Income

Yet another potential area where states can generate tax revenue is by taxing retirement accounts such as 401(k) plans, individual retirement accounts (IRAs), and Thrift Savings Plans (TSPs). In all, there are 13 states that don’t levy taxes on retirement income derived from these sources:

•   Alaska

•   Florida

•   Illinois

•   Iowa

•   Mississippi

•   Nevada

•   New Hampshire

•   Pennsylvania

•   South Dakota

•   Tennessee

•   Texas

•   Washington

•   Wyoming

34 States That Don’t Tax Retirement Income From the Military

There are certain states that tax military retirement income, but most do not. In all, 34 states don’t tax military retirement income, including those that don’t have income taxes, and others that have specifically carved out exceptions for military retirement income.

•   Alabama

•   Alaska

•   Arizona

•   Arkansas

•   Connecticut

•   Florida

•   Hawaii

•   Illinois

•   Indiana

•   Iowa

•   Kansas

•   Louisiana

•   Maine

•   Massachusetts

•   Michigan

•   Minnesota

•   Mississippi

•   Missouri

•   Nebraska

•   Nevada

•   New Hampshire

•   New Jersey

•   New York

•   North Carolina

•   North Dakota

•   Ohio

•   Oklahoma

•   Pennsylvania

•   South Dakota

•   Tennessee

•   Texas

•   Washington

•   Wisconsin

•   Wyoming

9 States With No Income Tax

As covered, there are a lot of different tax levels and tax types — some include different types of retirement income, some just involve plain old income tax itself. As such, it’s not always easy to determine which states don’t tax retirement income whatsoever. These states, however, do not levy income tax.

•   Alaska

•   Florida

•   Nevada

•   New Hampshire

•   South Dakota

•   Tennessee

•   Texas

•   Washington

•   Wyoming

5 States With Low Retirement Income Taxes

Taking everything into account — taxes on income, pensions, Social Security, military retirement income, and more — there are several states that offer retirees relatively low retirement income taxes. Aside from the nine that don’t tax income at all, these states may be a good option for seniors, as they offer low retirement income taxes in one form or another:

•   Alabama

•   Mississippi

•   Georgia

•   Pennsylvania

•   Washington

Which States Have the Lowest Overall Tax Burden on Retirees?

Again, there is a lot to consider when trying to determine an overall tax burden, especially on retirees. But if you were to whittle down a list of a handful of states in which the tax burden is the absolute least on retirees? It would come down to the states with the overall smallest income tax burden, and a few other factors.

Delaware

Delaware hasn’t been discussed much, and though it does have state income taxes, a few other factors make it particularly appealing for retirees. Specifically, its state income tax rate tends to be relatively low (2.2% – 6.6%), and it has low property taxes, no sales taxes, and no applicable estate taxes.

Nevada

Nevada is a state with no state income taxes — a big win for retirees — and that also has relatively low property taxes, and no estate taxes. It also doesn’t tax income from most retirement accounts, or military retirement income.

Wyoming

Wyoming is similar to Nevada in that it has no state income taxes, low property taxes, and no estate taxes. There are applicable sales taxes, but it’s a drop in the bucket compared to the overall tax burdens seen in other states.

Can You Have Dual State Residency?

Generally, most people are residents of just one state. It is possible, however, to have dual residency in two different states. This can happen if you live in each state for part of the year to attend school or to work.

The state of Virginia, for example, distinguishes between residents who maintain a home in the state for 183 days or more during the year and domiciliary residents who claim Virginia as their legal state of residence. Under state law, it’s possible to be a resident of Virginia and a domiciliary resident of another state.

For instance, a college student from California who lives in Virginia during the school year would be a dual resident. However, you can have only one domicile — in this example, it would be California.

If you live and earn taxable income in two different states during the year, you may have to file tax returns in both those states unless a reciprocity agreement exists. Reciprocity agreements ensure taxpayers only pay income tax to their home state, even if they work in another one.

What to Consider Before Moving to a Tax-Friendly State

Moving to a state that doesn’t tax pensions and Social Security could yield income tax savings, but it’s important to consider the bigger financial picture. Paying no or fewer income taxes on retirement benefits may not be much of a bargain if you’re stuck paying higher property taxes, or your heirs are left with steep inheritance taxes, for instance.

Also consider the overall cost of living. If everyday essentials such as housing, food, and gas are higher in a state that has no income tax, then your retirement benefits may have less purchasing power overall. If costs end up being higher than you anticipated, you might end up working after retirement to fill any retirement income shortfalls.

The Takeaway

There are a number of states that tend to be more tax-friendly for retirees, and those generally include the states that don’t levy any income taxes. That list comprises states such as Alaska, Nevada, Texas, Florida, and Tennessee. But there are other potential taxes to take into consideration, and states all have different tax rules in regards to pensions, retirement accounts, capital gains, and more.

As such, if you’re hoping to save on taxes during retirement, you’ll need to do a little digging into the specifics to see what might affect you, given your unique financial picture. It’s wise to take into account other tax types as well (property taxes, etc.), and overall cost of living. Doing a thorough cost-benefit analysis before deciding to move could be beneficial.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

What is the most tax-friendly state to retire in?

The most tax-friendly states for retirees are states that don’t tax pensions and Social Security, and have a low tax-profile overall for sales and property tax. Some of the best states for retirees who want to avoid high taxes include Alabama, Florida, Georgia, Mississippi, Nevada, South Dakota, and Wyoming.

Which states have no 401(k) tax?

States that do not tax 401(k) distributions include: Alaska, Florida, Illinois, Iowa, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Which states do not tax pensions?

States that do not tax pensions include the nine states that have no income tax — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Additionally, six states — Alabama, Hawaii, Illinois, Iowa, Mississippi, and Pennsylvania — exclude pension income from state taxation.

How can I avoid paying taxes on retirement income?

The simplest way to avoid paying taxes on retirement income is to move to a state that has the smallest applicable tax burden on retirement income sources. That would include the short list of nine states that don’t have any sorts of state income tax. You may also want to consult a professional.

Which states are tax-free for Social Security?

There are a grand total of 41 states — plus the District of Columbia — that don’t tax Social Security benefits. That list includes the nine states that don’t tax income at all.

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SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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Many people consider relocating when they retire to reduce their cost of living and make their savings last longer. When weighing the pros and cons of moving to another state, it’s important to consider the total tax burden there, including state and local taxes on retirement income, property tax, even sales tax. Some areas with a lower tax burden have a higher overall cost of living, which can cancel out any savings.

Below we look at the best states to retire in for taxes and how to tell if moving will be worth it.

Most Tax-Friendly States for Retirement

A number of states exempt Social Security income from state taxes. A smaller number offer a tax break on other retirement income, such as IRAs and 401(k) plans, private pensions, interest, dividends, and capital gains.

These are the 10 tax-friendly states for retirees, according to Kiplinger:

1.   Mississippi

2.   Tennessee

3.   Wyoming

4.   Nevada

5.   Florida

6.   South Dakota

7.   Iowa

8.   Pennsylvania

9.   Alaska

10.   Texas

But before you complete that change of address card, you’ll want to look at the bigger picture.

Factors to Consider When Choosing the Best State to Retire In

When choosing where to retire, it’s wise to first consider issues like safety, access to healthcare, distance to friends and family, or living near other people of retirement age.

Make a list of features that are important to you in a retirement locale, and consider whether any of them could indirectly impact your cost of living, such as being close to friends and family.

Then look at the total cost of living in an area: housing, food, transportation, cultural activities, and other expenses. These retirement expenses generally have a bigger impact on one’s lifestyle than taxes.

Finally, to determine whether a state is tax-friendly for retirees, look at the following:

Does the State Tax Social Security?

Generally, Social Security income is subject to federal tax. But some states also tax Social Security above a certain income threshold, while other states offer tax exemptions for individuals in lower tax brackets.

For the 2025 tax year, the states that tax some or all Social Security benefits are Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

Does the State Tax Pensions?

Many states tax income from pensions, but 15 states do not. These states are: Alabama, Alaska, Florida, Hawaii, Illinois, Iowa, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming.

And these 13 states do not tax income from 401(k) plans: Alaska, Florida, Illinois, Iowa, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Alaska, Florida, Nevada, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax.

Other Taxes That Affect Retirees

When choosing the best state for you to retire in, it’s a good idea to look into sales tax and property taxes too. States that don’t charge sales tax are Alaska, Delaware, Montana, New Hampshire, and Oregon. On the other hand, New Hampshire has very high property taxes, reducing the benefit of no sales tax.

Recommended: When to Start Saving for Retirement

States to Avoid When Retiring

Choosing the best state to retire in sometimes means making compromises. If safety and healthcare access are top priorities, for instance, you may not get your ideal weather. But for many retirees, a high cost of living is a deal-breaker.

Here are the 10 states with the highest annual cost of living, according to a 2025 analysis conducted by GOBankingRates:

1.   Hawaii: $144,436

2.   Massachusetts: $112,752

3.   California: $111,901

4.   Alaska: $95,673

5.   New York: $95,286

6.   Maryland: $89,104

7.   New Jersey: $88,563

8.   Vermont: $88,408

9.   Washington: $88,254

10.   New Hampshire: $87,017

Recommended: Avoid These 12 Retirement Mistakes

The Best States to Retire in 2026

As noted above, the best state to retire in will depend on an individual or couple’s budget, lifestyle, and values. But recent trends may help point you in the right direction.

These are the top 10 states that retirees are moving to, according to United Van Lines’ 2024 National Movers Study:

1.   West Virginia

2.   Delaware

3.   South Carolina

4.   Washington, D.C.

5.   North Carolina

6.   Alabama

7.   Rhode Island

8.   Oregon

9.   Arkansas

10.   Arizona

If cost of living is your sole concern, the following are the 10 least expensive states, according to Bankrate:

1.   West Virginia

2.   Pennsylvania

3.   Delaware

4.   Wyoming

5.   Ohio

6.   Wisconsin

7.   Nevada

8.   Indiana

9.   Idaho

10.   Georgia

States with the Lowest Tax Burden

An area’s total tax burden is the sum of all property taxes, sales taxes, excise taxes (which affect the price of goods), and individual income taxes. Below are the states with the lowest total tax burden for retirees. (On a budget? Tools like an online budget planner can help you monitor spending and make progress toward your financial goals.)

Rank	State	Total Tax Burden
1	Alaska	4.9%
2	Wyoming	5.8%
3	New Hampshire	5.9%
4	Tennessee	6.4%
5	Florida	6.5%
6	Delaware	6.5%
7	South Dakota	6.5%
8	North Dakota	6.6%
9	Oklahoma	7%
10	Idaho	7.5%

States With the Most Millionaires

One way to measure the overall desirability of an area is the number of millionaires who live there. After all, millionaires can afford to live in states that have high-quality healthcare, nice weather, and diverse cultural offerings. These are not the cheapest states in terms of cost of living or taxes, but their popularity may help non-millionaires reevaluate their must-haves vs. nice-to-haves.

Rank	State	% of Millionaire Households
1	New Jersey	9.76%
2	Maryland	9.72%
3	Connecticut	9.44%
4	Massachusetts	9.38%
5	Hawaii	9.20%
6	District of Columbia	9.12%
7	California	8.51%
8	New Hampshire	8.47%
9	Virginia	8.31%
10	Alaska	8.18%
Source: Statista

Does It Make Financial Sense to Relocate in Retirement?

For workers who already live in a state with moderate taxes, are near family, and have a lifestyle they enjoy and can afford, there may not be any compelling reason to move. But for those looking to make a change or lower their retirement expenses, it may make financial sense to relocate.

Just remember that housing, food, transportation, and other expenses usually have a bigger impact on one’s retirement lifestyle than taxes.

Pros and Cons of Relocating for Tax Benefits

Lower taxes alone may not be enough to motivate someone to pick up and move house. Other factors should also support the decision.

Pros of Relocating for Tax Benefits

•  Potentially lower cost of living

•  Discovering a community of like-minded retirees

•  Possibly ticking off other boxes on your list

Cons of Relocating for Tax Benefits

•  Other living costs may cancel out the tax benefits

•  Moving costs are high, and the stress can be tough

•  Need to find another home

The Takeaway

The best state to retire in for tax purposes depends on an individual’s budget, lifestyle, and values. Some states with lower taxes for retirees can have higher housing and transportation costs, canceling out any tax benefit. A financial advisor can help you decide if saving on taxes is worth the expense and trouble of relocating.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

What are the 3 states that don’t tax retirement income?

Nine states don’t tax retirement plan income because they have no state income taxes at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Those states, along with Illinois, Iowa, Mississippi, and Pennsylvania, don’t tax distributions from 401(k) plans, IRAs, or pensions. Alabama and Hawaii don’t tax pensions, but do tax distributions from 401(k) plans and IRAs.

Which state is the best state to live in for tax purposes?

Alaska has the lowest overall tax rates.

Which states do not tax your 401k when you retire?

Alaska, Florida, Illinois, Iowa, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax 401(k) plans when you retire.

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Photo credit: iStock/Jeremy Poland

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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A health savings account, or HSA, not only provides a tax-free way to pay for medical expenses now, those tax savings can extend to retirement as well.

An HSA provides triple tax benefits to the account holder. You set aside money pre-tax (similar to a 401(k) or IRA), it grows tax free, and withdrawals for qualified medical expenses are also tax free.

HSAs can be a boon in retirement because you always have access to the account, even if you change jobs, and you never have to “use it or lose it,” so your savings can grow over time. Thus, you can use HSA funds to pay for qualified medical expenses at any time, tax free, now or when you retire.

The other good news is that after age 65 you can use the funds for non-qualified expenses, too; you just have to pay income tax on the funds you withdraw.

What Is an HSA?

A health savings account is a type of tax-advantaged savings account for individuals with a high-deductible health care plan (HDHP). For 2026, this means it has an annual deductible of at least $1,700 for self-only coverage and $3,400 for family coverage. In addition, its out-of-pocket maximum (including annual deductible) can’t exceed $8,500 for individuals and $17,000 for families.

Anyone who fits the criteria is eligible to open an HSA and save pre-tax dollars: up to $4,300 for individuals ($8,550 for families) for the 2025 tax year; up to $4,400 for individuals ($8,750 for families) for the 2026 tax year. If you’re 55 or older at the end of either tax year, you can contribute an additional $1,000 — similar to the catch-up contributions allowed with an IRA.

An employer can also make a matching contribution into your HSA, though it’s important to note that total employer and employee contributions can’t exceed the annual limits. So if you’re single, and your employer contributes $1,500 to your HSA each year, you can’t contribute more than $2,900 for 2026.

Rules and Restrictions on HSA Contributions

You have until the tax-filing deadline to make your annual HSA contribution.

•   For tax year 2025, you have until April 15, 2026.

•   For tax year 2026, you have until April 15, 2027.

It’s important to know the amount you can contribute to your account, both so you can take advantage of your HSA and to make sure you’re not penalized for excess contributions. If the amount you deposit for the year in your HSA is over the defined limit, including any employer contributions and catch-up contributions, you’ll owe ordinary income tax on that amount, plus a 6% penalty.

Another caveat: Once you enroll in or become eligible for Medicare Part A benefits, you can no longer contribute money to an HSA.

What Are HSA Withdrawals?

You can withdraw funds from your HSA to pay for qualified medical and dental health care expenses, including copays for office visits, diagnostic tests, supplies and equipment, over-the-counter medications, and menstrual care products. Health insurance premiums are not included as qualified expenses, however.

One significant benefit of HSA accounts is that, unlike flexible spending accounts (FSAs), the money in an HSA doesn’t have to be used by the end of the year. Any money in that account remains yours to access, year after year. Even if you change jobs, the account comes with you.

Before age 65, there is a 20% penalty for withdrawing funds from an HSA for non-medical expenses, on top of ordinary income tax. After age 65, HSA holders can also make non-medical withdrawals on their account, though ordinary income tax applies.

How Do Health Savings Accounts Work?

HSAs are designed to help consumers play for medical expenses when they have a high-deductible health plan (HDHP). That’s because typically an HDHP only covers preventive care before the deductible, so most types of medical care would have to be paid out of pocket as they’re applied to the deductible amount.

Having a tax-advantaged plan like an HSA gives people a bit of a break on medical expenses because they can save the money pre-tax (meaning any money you save in an HSA lowers your taxable income), and it grows tax-free, and you withdraw the money tax-free as well, as long as you’re paying for qualified expenses.

As noted above, you can withdraw your HSA funds at any time. But if you’re under age 65 and paying for non-qualified expenses, you’ll owe taxes and a 20% penalty on the amount you withdraw.

After age 65, you simply owe taxes on non-qualified withdrawals, similar to withdrawal rules for a 401(k) or traditional IRA.

💡 Quick Tip: It’s smart to invest in a range of assets so that you’re not overly reliant on any one company or market to do well. For example, by investing in different sectors you can add diversification to your portfolio, which may help mitigate some risk factors over time.

Can an HSA Be Used for Retirement?

HSAs are not specifically designed to be a retirement planning vehicle, but you can use HSA funds in retirement, since the money accumulates in your account until you withdraw it tax-free for qualified medical expenses.

There’s no “use it or lose it” clause with an HSA account, so any unused funds simply roll over to the following year. This offers some potential for growth over time.

That said, the investment options in an HSA account, unlike other designated retirement accounts, tend to be limited. And the contribution caps are lower with an HSA.

You could also use your HSA funds to pay for other retirement expenses after age 65 — you’ll just have to pay income tax on those withdrawals.

Recommended: How to Set Up a Health Savings Account

3 Reasons to Use an HSA for Retirement

Though they aren’t specifically designed to be used in retirement planning, it’s possible to use an HSA for retirement as a supplement to other income or assets. Because you can leave the money you contribute in your account until you need it for qualified medical expenses, the funds could be used for long-term care, for example.

Or, if you remain healthy, you could tap your HSA in retirement to pay for everyday living expenses.

There are several advantages to including an HSA alongside a 401(k), Individual Retirement Account (IRA), and other retirement savings vehicles. An HSA can yield a triple tax benefit since contributions are tax-deductible, they grow tax-deferred, and assuming you withdraw those funds for qualified medical expenses, distributions are tax-free.

If you’re focused on minimizing your tax liability as much as possible prior to and during retirement, an HSA can help with that.

Using an HSA for retirement could make sense if you’ve maxed out contributions to other retirement plans and you’re also investing money in a taxable brokerage account. An HSA can help create a well-rounded, diversified financial plan for building wealth over the long term. Here’s a closer look at the top three reasons to consider using HSA for retirement.

1. It Can Lower Your Taxable Income

You may not be able to make contributions to an HSA in retirement, but you can score a tax break by doing so during your working years. The money an individual contributes to an HSA is deposited pre-tax, thus lowering their taxable income.

Furthermore, any employer contributions to an HSA are also excluded from a person’s gross income. Meaning: You aren’t taxed on your employer’s contributions.

The money you’ve deposited in an HSA earns interest and contributions are withdrawn tax-free, provided the funds are used for qualified medical expenses. In comparison, with a Roth IRA or 401(k), account holders are taxed either when they contribute (to a Roth IRA) or when they take a distribution (from a tax-deferred account like a traditional IRA or 401(k)).

Using HSA for retirement could help you manage your tax liability.

2. You Can Save Extra Money for Health Care in Retirement

Unlike flexible spending accounts that allow individuals to save pre-tax money for health care costs but require them to use it the same calendar year, there is no “use it or lose it” rule with an HSA. If you don’t use the money in your HSA, the funds will be available the following year. There is no time limit on spending the money.

Because the money is allowed to accumulate, using an HSA for retirement can be a good way to stockpile money to pay for health care, nursing care, and long-term care costs (all of which are qualified expenses) if needed.

While Americans can enroll in Medicare starting at age 65, some health care needs and services aren’t covered under Medicare. Having an HSA to tap into during retirement can be a good way to pay for those unexpected out-of-pocket medical expenses.

3. You Can Boost Your Retirement Savings

Beyond paying for medical expenses, HSAs can be used to save for retirement. Unlike a Roth IRA, there are no income limits on saving money in an HSA.

Some plans even allow you to invest your HSA savings, much like you would invest the funds in a 401(k).

The investments available in any given HSA account depend on the HSA provider. And the rate of return you might see from those investments, similar to the return on a 401(k), depends on many factors.

Investing can further augment your retirement savings because any interest, dividends, or capital gains you earn from an HSA are nontaxable. Plus, in retirement, there are no required minimum distributions (RMDs) from an HSA account — you can withdraw money when you want or need to.

Some specialists warn that saving for retirement with an HSA really only works if you’re currently young and healthy, rarely have to pay health care costs, or can easily pay for them out of your own pocket. This would allow the funds to build up over time.

If that’s the case, come retirement (or after age 65) you’ll be able to use HSA savings to pay for both medical and non-medical expenses. While funds withdrawn to cover medical fees won’t be taxed, you can expect to pay ordinary income tax on non-medical withdrawals, as noted earlier.

HSA Contribution Limits

If you are planning to contribute to an HSA — whether for immediate and short-term medical expenses, or to help supplement retirement savings — it’s important to take note of HSA contribution limits. If your employer makes a contribution to your account on your behalf, your total contributions for the year can’t exceed the annual contribution limit.

2025 Tax Year HSA Contribution Limits:

•   $4,300 for individual coverage

•   $8,550 for family coverage

•   Individuals 55 and up can contribute an additional $1,000 over the annual limit.

Remember that you can contribute to your HSA for tax year 2025 until April 15, 2026.

2026 Tax Year HSA Contribution Limits:

•   $4,400 for individual coverage

•   $8,750 for family coverage

•   Individuals 55 and up can contribute an additional $1,000 over the annual limit

Remember that you can contribute to your HSA for tax year 2026 until April 15, 2027.

How to Invest Your HSA for Retirement

An HSA is more than just a savings account. It’s also an opportunity to invest your contributions in the market to grow them over time. Similar to a 401(k) or IRA, it’s important to invest your HSA assets in a way that reflects your goals and risk tolerance.

That said, one of the downsides of investing your HSA funds is that these accounts may not have the wide range of investment options that are typically available in other types of retirement plans. Investment fees are another factor to keep in mind.

It’s also helpful to consider the other ways you’re investing money to make sure you’re keeping your portfolio diversified. Diversification is important for managing risk. From an investment perspective, an HSA is just one part of the puzzle and they all need to fit together so you can make your overall financial plan work.

HSA for Retirement vs Other Retirement Accounts

Although you can use an HSA as part of your retirement plan, it’s not officially a retirement vehicle. Here are some of the differences between HSAs and other common types of retirement accounts. Note: All amounts reflect rules/ limits for the 2026 tax year.

	HSA	Traditional IRA	401(k)
2026 annual contribution limit	$4,400 (individual); $8,750 (family)	$7,500	$24,500
Catch up contribution	+ $1,000 for those 55 and older	+ $1,100 for those 50 and older	+ $8,000 for those 50 and older (+ $11,250 for those 60-63)
Contributions & tax	Pre-tax	Pre-tax	Pre-tax
Withdrawals	Can withdraw funds at any age, tax free, for qualified medical expenses.	After age 59 ½ withdrawals are taxed as income.	After age 59 ½ withdrawals are taxed as income.
Penalties/taxes	Withdrawals before age 65 for non-qualified expenses incur a 20% penalty and taxes. Withdrawals after age 65 for non-qualified expenses are only taxed as income.	Before age 59 ½ withdrawals are taxed, and may incur an additional 10% penalty. Some exceptions apply.	Before age 59 ½ withdrawals are taxed, and may incur an additional 10% penalty. Some exceptions apply.
RMDs	No	Yes	Yes

As you can see, an HSA is fairly similar to other common types of retirement accounts, like traditional IRAs and 401(k)s, with some key differences. For example, you can generally contribute more to an IRA and to a 401(k) than you can to an HSA, as an individual.

While contributions are made pre-tax in all three cases, an HSA offers the benefit of tax-free withdrawals, at any time, for qualified medical expenses.

Note that Roth IRAs also have a tax-free withdrawal structure for contributions, but not earnings, unless the account holder has had the Roth for at least 5 years and is over 59 ½. The rules governing Roth accounts, including Roth IRAs and Roth 401(k)s can be complicated, so be sure you understand the details.

In addition, HSA rules allow the account holder to maintain the account even if they leave their job. There is no need to do a rollover IRA, as there is when you leave a company and have to move your 401(k).

💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

What Happens to an HSA When You Retire?

An HSA doesn’t go away when you retire; instead, the money remains available to you until you need to use it. As long as withdrawals pay for qualified medical expenses, you’ll pay no taxes or penalties on the withdrawals. And your invested contributions can continue to grow as long as they remain in the account.

One advantage of using an HSA for retirement versus an IRA or 401(k) is that there are no required minimum distributions. In other words, you won’t be penalized for leaving money in your HSA.

How Much Should I Have in an HSA at Retirement?

The answer to this question ultimately depends on how much you expect to spend on health care in retirement, how much you contribute each year, and how many years you have to contribute money to your plan.

Say, for example, that you’re 35 years old and making contributions to an HSA for retirement for the first time in 2026. You plan to make a $4,400 contribution for individual coverage for the next 30 years.

Assuming a 5% rate of return, monthly contributions of roughly $367, and $50 per month in HSA medical expenses, you’d have about $269,257 saved in your HSA at age 65.

When Can I Use My HSA Funds?

Technically your HSA funds are available to you at any time. So if you have to pick up a prescription or make an unscheduled visit to the doctor, you could tap into your HSA to pay for any out-of-pocket costs not covered by insurance.

If you’re interested in using an HSA in retirement, though, it’s better to leave the money alone if you can, so that it has more opportunity to grow over time.

The Takeaway

A health savings account can be a valuable tool to help pay for qualified out-of-pocket medical costs, tax-free right now. But an HSA can also be used to accumulate savings (and interest) tax-free, to be used on medical and non-medical expenses in retirement.

While an HSA can be useful for retirement, especially given the rising cost of long-term care and other medical needs, note that the annual contribution limit for individuals is much lower than other retirement accounts. Also, the investment options in an HSA may be limited compared with other retirement plans.

Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.

Easily manage your retirement savings with a SoFi IRA.

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SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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