What is an HSA?
A Health Savings Account (HSA) is a tax-advantaged account that can be paired with a high-deductible health plan. HSAs were created as a savings vehicle to help people pay out-of-pocket medical expenses. If qualified, you can establish an HSA in much the same way you establish a traditional savings account or an individual retirement account. You can open one with a lump-sum payment or through regular contributions, usually through paycheck deductions.
Why Use an HSA?
What makes HSAs appealing is that they offer several valuable tax-saving features. For example, your contributions are excluded from deductible income, all account earnings accumulate tax free, and, as long as the medical expenses paid with HSA savings are “qualified” expenses for you, your spouse, or your dependents, withdrawals from HSAs are tax free also. It is these tax savings features plus the ability to invest contributions in longer term assets that can make HSAs viable as alternative retirement savings vehicles.
HSA Contribution Rules
You can treat an HSA as a long-term investment account for retirement, an account for paying medical expenses, or both.
The maximum family contribution for 2025 is $8,550 plus a $1,000 maximum catch-up contribution for participants who are age 55 or more. For self-only coverage, the maximum contribution for 2025 is $4,300 plus a $1,000 catch-up contribution for those participants age 55 or more. The limits will be adjusted for inflation in future years. An individual’s employer or family member may contribute as long as the total contribution amount does not exceed the annual limit.
Investing Contributions
As a participant in an HSA, you have the choice of keeping contributions in cash or investing them in other assets, such as stock and bond mutual funds.* Money not spent on qualified expenses during the year is rolled over for subsequent years. If you are in fairly good health and underutilize medical and health services, you could potentially build up a relatively large balance in the HSA account over several years.
Making HSAs Work as Retirement Savings Vehicles
If you currently maximize contributions to all tax-favored retirement accounts and also save in taxable accounts, you could treat the HSA as one more option to increase your savings and do so in a tax-favored way. Essentially, you would treat the HSA as a retirement savings account and allow the assets in the account to accumulate for as long as possible while paying out-of-pocket medical costs with taxable funds. Of course, this approach does not work if you cannot fully fund all your tax-advantaged retirement savings vehicles.
The chart below shows how an HSA compares to taxable investment accounts, traditional IRAs and Roth IRAs.
Which to Fund First?
If you are funding several different accounts, smart account prioritization can maximize long-term tax-adjusted growth.
- Employer plan with matching contributions
- Health Savings Account
- Additional tax-advantage accounts (Roth or traditional IRAs, not employer matched, 529 savings plans, etc.)
- Taxable accounts
This chart provides a breakdown of taxes on contributions, investment growth and withdrawals.
We’re Here to Help!
Remember, each person’s situation is different and you will benefit from discussing a Health Savings Account — and other retirement savings options — with an experienced financial professional.
Call 1-833-637-5360 or schedule a meeting with us to learn about advantages of a HSA in your overall plan.
*You should consider a fund’s investment objectives, charges, expenses, and risks carefully before you invest. The fund’s prospectus, which can be obtained from your financial representative, contains this and other information about the fund. Read the prospectus carefully before you invest or send money. Shares, when redeemed, may be worth more or less than the original cost.
