There is no “use it or lose it” policy with money in your Health Savings Account (HSA) like there is with a flexible spending account (FSA). You get to call the shots when you want to use the money to pay for qualified medical expenses.

Need cash to pay out of pocket medical costs right now, great, you can tap your HSA. Next year? That’s cool too. You also can let your account grow, for decades, which will land you in retirement with a pot of money you can tap tax free to cover your later-life out-of-pocket medical expenses.

Given that HSAs offer more tax breaks than either 401(k)s or IRAs, an HSA can be a very valuable stealth retirement account.

If you know you can handle your current out-of-pocket medical costs from other income or savings, using your HSA as a complementary retirement account gives you a great way to let compound growth help you build a secure retirement.

Invest for Growth

When your HSA is used for current medical costs, it belongs in a safe bank account. Sure, you’re not earning much these days—1% to 2% is the high end --given low interest rates, but your priority is to know that the money will be there if and when you need it. Safety first.

But if you don’t plan on touching your HSA account for years, you may want to choose investments for your HSA money that mirror your asset allocation for your other retirement accounts, where you own a mix of stock and bonds. Over time, owning stocks and bonds has historically produced higher returns than cash in the bank. Of course, you are well aware of the important caveat: investing requires a stomach for living through intermittent periods when stocks fall.

The combination of consistent HSA contributions and compound growth from investing can build a mighty big nest egg.

In 2020, an individual under the age of 55 will be allowed to save $3,550 in an HSA. That limit is increased to keep pace with inflation. But let’s assume that you just keep saving $3,550 each year and you earn an annualized return of 5 percent.

Your account will be worth $170,000 in 25 years; more than $80,000 of that pot is the result of compound growth on the money you invested. Have 40 years until you expect to retire? The account will be worth more than $425,000 and nearly $290,000 of that will be the result of compound growth.

If your high deductible health plan covers your family you can save $7,100 in 2020. Keep that up for 25 years, your HSA “retirement” account will be worth nearly $340,000 in 25 years and more than $850,000 in 40 years assuming a 5 percent annualized return.

If you make it a goal to increase your contributions when the limits are raised for inflation, your savings will grow even more. And once you turn 55 you can add another $1,000 to your contributions, giving you even more money that can compound for your retirement health-expense fund.

Moreover, the value of all that compound growth is effectively bigger than other types of retirement savings. Every dollar you withdraw from an HSA to cover qualified medical expenses will be 100% tax free. Every dollar you take out of a traditional 401(k) and IRA account will be taxed as ordinary income. Compound growth is the secret sauce to all long-term investing. With an HSA it packs the added punch of unparalleled tax breaks.