HSAs: More Than Just a Savings Account

By Start Health

You probably know that HSAs are an excellent way to save on healthcare. They offer a triple-tax advantage, and their funds transfer between employers and roll over annually—no risk of losing them. But did you know there’s dozens of relatively unknown strategies to maximize your HSA? HSAs involve tax breaks beyond the triple-tax advantage and are an excellent savings vehicle for retirement. Even if you think you’re too young to be thinking about retirement, you should know that HSAs are becoming hugely popular with millennials and Gen Z due to their tax-free coverage of ever-increasing healthcare costs.

If you only take away three tips from this article, it should be the three below:

Maximize Your Contributions

Be sure to contribute the maximum yearly amounts to your HSA each year, or as close to them as you can afford. Even if you can’t afford the maximums, it’s important that you contribute every year. If you’re married, split your HSA into two accounts. You’ll still be limited to the maximum annual family contribution, but each spouse can make an annual $1,000 catch-up contribution once they reach age 55. If you haven’t started maximizing your HSA, it’s not too late. You can start contributing at age 50 and still build quite a nest egg because those are your peak earning years. (Be aware that enrolling in Medicare makes it so that you can’t contribute to your HSA anymore.)

Leave Funds Untouched

An HSA is a great safety net for unforeseen medical expenses. However, if you can avoid dipping into your HSA funds and pay for your medical expenses out-of-pocket instead, you’ll be on your way to building a sturdy retirement fund. Leaving funds untouched is especially beneficial if you are young and healthy. Your healthcare costs are likely low and covering them out of pocket might not be a significant burden. If you do this, your HSA funds can soar.

“There’s no rule that says you must pay for medical expenses directly from your HSA,” says expert Adam Levy. “You can hold onto your receipts for years or decades before reimbursing yourself from your HSA. If you can pay for your medical expenses from your regular bank account, that gives investments in your HSA more time to grow tax free.” (More on this later.) Ideally, an HSA holder would wait until retirement to withdraw funds, as that is when withdrawal is most advantageous because the funds can be used on non-medical expenses.*


An HSA’s ability to grow tax free should certainly be taken advantage of. HSA funds don’t incur taxes on interest or gains. Invest your HSA savings in mutual funds, stocks, or bonds to gain tax-free wealth. (Of course, it is always wise to set aside some funds for short-term, unanticipated healthcare costs.) Investing in your HSA not only produces rapid growth, but better growth. When your money sits in a bank account you may receive 1 or 2% interest, but when you utilize investment funds, your savings can grow exponentially.

The average couple retiring today needs over $280,000 to cover the cost of healthcare throughout their retirement. This number is startling, but if you contribute the maximum yearly limits to your HSA, leave your HSA funds relatively untouched, and invest those funds, the number above will become less and less frightening. 

HSA Tax Secrets

HSAs allow tax-free contributions, growth, and withdrawals for qualified medical expenses. But the financial benefits don’t stop there.

HSAs do not require minimum distributions.

A required minimum distribution, or RMD, is an IRS-mandated amount of money that a retiree must withdraw each year from a traditional IRA or an employer-sponsored retirement account, like a 401(k). But guess what? You don’t have to worry about that with an HSA!

Non-Withdrawal Tax Breaks

HSA funds that go untouched get tax breaks even better than the ones for IRAs and 401(k)s. HSA funds left in your account can compound for years. Even if you don’t withdraw from your HSA for medical expenses, you can turn in your receipts for tax-free reimbursement down the road. (See next section.)

Save Now, Cash in Later

You can earn tax-free interest on your HSA contributions by paying for qualified medical expenses out-of-pocket and reimbursing yourself later. There is no expiration date on reimbursement, and unlike with an IRA withdrawal, the payout will be tax-free. Just be sure to keep your receipts, and you can wait a long time—even decades—before reimbursing yourself. What’s the advantage of this? Maybe you’re saving up for something expensive, like a vacation or even retirement. You can pool the receipts for your out-of-pocket medical expenses over a series of time and receive tax-free reimbursement for them all at once when you need the money.

Direct Contributions

Most employers offer the option to set up payroll deductions on your account, meaning money will automatically go into your HSA tax-free. This is an excellent option for promoting continuous HSA growth; however, if you make direct contributions to your HSA, you may be able to claim a tax deduction for that amount when you file your tax return.

Employer Tax Benefits

HSA tax benefits are a win-win for both employers and employees. Employer HSA contributions are tax-deductible as a business expense, and they are exempt from FICA taxes. An employer who has 100 employees on an HSA plan can save more than $50,000 a year in FICA tax savings.

HSAs can outlive their owners.

No one wants their life savings to go to the IRS after they pass. Fortunately, HSA funds can be transferred to spouses without any tax implications.

The Future of HSAs

HSA growth is going strong, and evidence suggests this pattern will continue. As inflation sets troubling new records (with healthcare inflation doubling general inflation), more and more U.S. citizens are investigating HSAs. Consumers are becoming increasingly aware that the cost-cutting benefits of HSAs extend even beyond the scope of healthcare.

*HSA funds used on non-medical expenses after the age of 65 are subject to regular taxation.


“5 Steps to Make the Most of Your HSA”
Kelli B. Grant

“Are You Making the Most of Your HSA?”
Adam Levy

“The Best Moves to Make With Your Health Savings Account”
Robert Farrington

“The Best-Kept HSA Secret”

“How to Make the Most of Your HSA Investment”
Ramsey Solutions

“How to Maximize the Value of Your Health Savings Account”
Robert Farrington

“HSAs and Their Tax Benefits for Employers”

“HSA Taxes, FSA Taxes, & How They Work in 2022”

“Keeping Up With Healthcare Inflation”

“Tax Secrets of Health Savings Accounts”
The Wall Street Journal

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