Discover the Benefits of Health Savings Accounts: Financial Planners Share Their Advice

What is an HSA?

An HSA is a tax-advantaged savings account available to those with high-deductible health plans that lets you set aside money to use toward qualified medical expenses. The advantages of an HSA include a triple tax benefit: contributions are tax deductible, the account’s growth is tax-free, and withdrawals for qualified medical expenses are also not taxed. The account balance is not “use-it-or-lose-it” and rolls over annually. Additionally, you can take your HSA with you if you change employers and you’ll have the option to use the funds for health care expenses down the road, even during retirement.

“More individuals are now treating their HSAs as a long-term investment vehicle for retirement rather than solely to cover current medical expenses,” says Akeiva Ellis, a certified financial planner (CFP®) and CEO of The Bemused, a financial education and coaching company for young professionals. “This shift underscores the growing recognition of HSAs as a valuable tool for building wealth.”

How can an HSA help you build wealth?

Get a tax “discount”

“If our clients are going to be paying for medical expenses anyway, and they’ve chosen a high deductible plan and can have the HSA, then for us it’s a no-brainer to fund the account,” says Josh Trubow, CFP, a senior financial advisor at Sensible Financial, a fee-only financial planning firm with locations in Waltham, MA and San Diego, CA. “I tend to think of it as almost like getting a discount on health spending, because if it weren’t in an HSA, you’d be paying with after-tax dollars.”

Take advantage of compound growth

HSAs are not only about tax benefits. Many HSA providers allow account holders to invest through the account. “This feature makes HSAs incredibly powerful for financial growth,” Ellis says.

Trubow agrees and often recommends that his clients invest the money in their HSA account and avoid spending it, to let growth from investments compound over time. “We tend to talk about [HSAs] in the context of a lifetime planning process,” he says. “The nice thing is that, compared to just leaving that money in a brokerage account or a bank account, the interest or the investment returns in an HSA grow tax-free.”

“If the fund accumulates untouched, it will grow exponentially because of the compound effect of the investments,” notes Laongdao “Tak” Suppasettawat, CFP®, certified public accountant and principal at TAK Advisory LLC.

Use your HSA as a safety net

“Clients express how an HSA provides a financial safety net when health issues arise,” Ellis says. “It offers peace of mind.”

When you have an HSA, you can pay for qualified medical expenses out of pocket while saving the receipts. The IRS allows you to use the HSA funds to reimburse yourself for those expenses at a later date, offering flexibility to use the money in the account when you decide you need it.

“Suppose in a couple years from now, I’m in a pinch,” Trubow explains. “I can say, ‘Well, I paid for a $5,000 health visit with cash. I didn’t use my HSA. I’m going to take the money out of the HSA now to essentially reimburse myself for that expense.'”

An HSA might be right for you if:

Your employer offers a qualifying high-deductible plan

To be eligible for an HSA, you must have a qualifying high-deductible health plan. “The first step is really to find out if you have a high-deductible plan at work and if it is qualifying,” Trubow says. He recommends asking your human resources team if you need clarification.

A high-deductible plan makes sense for you and your family

Don’t choose a high-deductible plan only to open an HSA, Trubow recommends. “Pick the health plan that makes the most sense for you and your family.” If a high-deductible plan is the best fit, then consider an HSA an added benefit.

“You don’t want to go too high on the deductible if you expect high medical costs for that year,” Suppasettawat advises. “The younger, healthy person would be the prime target to get a high-deductible plan and open up an HSA.”

You have already maxed out your 401(k) match

If you are interested in investing with a limited amount to invest and are unsure where to put it, “I would say take a look at what your employer offers for retirement matching,” Trubow says. If your employer offers a match in your 401(k), you should put in the minimum amount needed to get the full match before considering funding an HSA. “There’s no investment you could reasonably put your money in that has an expected return anywhere close to a match.” Once you’ve met that match, consider funding an HSA.

Some employers also offer an HSA match or contribution, Ellis notes, which “can be a significant incentive for opening and funding an HSA.”