Understanding Health Savings Accounts

One way to grow your retirement savings that you might have never thought of

It can boost retirement savings and cut taxes
What is it?
An HSA

Understanding Health Savings Accounts (HSAs): your path to tax-advantaged medical savings

A thought leadership paper by Voya Financial revealed that just 27% of adults know that HSAs can be used as investment vehicles, and only 35% understand the primary reason for HSAs: to invest money for healthcare expenses throughout retirement.

Medical expenses are unpredictable and often expensive. Many people focus on paying their current medical bills, missing out on a powerful opportunity to build long-term savings while reducing their tax burden. If you’re not strategically using a Health Savings Account (HSA), you could be leaving money on the table.

Understanding the power of an HSA

*Most importantly, to have an HSA you must have a High-Deductible Health Plan (HDHP).

An HSA isn’t just a place to park money for doctor visits—it’s a retirement savings powerhouse. When paired with a High-Deductible Health Plan (HDHP), an HSA allows you to:

1. Cut taxes now: Contributions are tax-deductible, reducing your taxable income.
2. Grow your money faster: Investments in an HSA grow tax-deferred, just like a 401(k) or IRA.
3. Make tax-free withdrawals: When used for qualified medical expenses, withdrawals are completely tax-free. Unlike flexible spending accounts (FSAs), your HSA balance rolls over year after year. It’s yours to keep, even if you change jobs or retire.

When and how to use an HSA effectively

• Open an HSA ASAP: The best time to open and fund an HSA is as soon as you’re enrolled in an eligible HDHP. Many employers offer HSAs during open enrollment in the fall, but you can open one anytime.
• Max out contributions: For 2025, you can contribute up to $4,300 for individuals and $8,550 for families. If you’re 55 or older, you can add an extra $1,000 in catch-up contributions.To qualify for an HSA, a health plan must meet the IRS’s minimum deductible requirements, which in 2025 are $1,650 for individual coverage and $3,300 for family coverage.
• Invest for the future: Instead of keeping all your HSA funds in cash, consider investing in an S&P 500 index fund, or another money market fund. Over 20 years, a 7% annual return could turn maxed-out contributions into $378,000. You can also use this HSA goal calculator to see how your HSA can grow over time.
• Consider using cash for medical costs when possible: Pay for current healthcare expenses out of pocket and let your HSA balance grow. If you withdraw for medical expenses now, you could have far less in retirement.

A smarter way to cover medical costs and retirement

Even if you expect higher healthcare costs, an HSA can still work in your favor. Research shows that most people spend less overall when they combine an HDHP with an HSA due to lower premiums and tax benefits. Plus, many employers contribute to HSAs, helping offset deductible costs. The best part? Once you turn 65, you can use your HSA for any expense without penalty, though non-medical withdrawals are taxed like regular income. This flexibility makes it a valuable supplement to your retirement strategy.

What are qualified medical expenses?

Qualified medical expenses are health costs that your HSA (Health Savings Account) can help pay for. These include common things like deductibles, copayments, and other out-of-pocket costs from your health plan. But the list doesn’t stop there—it also covers many things your insurance might not, like acupuncture, chiropractic visits, dental care, glasses, hearing aids, and even long-term care or related insurance. You can also use your HSA for many over-the-counter medicines.

The overlooked value of HSAs

Many people underestimate the value of Health Savings Accounts (HSAs), often because the term “high-deductible” in high-deductible health plans (HDHPs) sounds expensive. However, monthly premiums for HDHPs are typically lower than those of traditional plans, and many employers contribute to their employees’ HSAs to help offset costs. Despite these benefits, people tend to overlook HSAs, missing out on significant tax advantages and long-term savings potential.

The investment potential: HSAs aren’t just for medical bills

A common misconception is that HSAs only benefit those in excellent health, but research from Voya Financial suggests that nearly three-quarters of people would spend less overall with an HDHP and HSA combination. Even individuals with chronic conditions, such as Type 2 diabetes or high cholesterol, can still benefit from an HSA if they fund and use it strategically. Predictable medical expenses can make plan selection easier, as understanding how costs are structured within an HDHP allows for better financial planning. Before reaching the deductible, patients pay the negotiated rate for services, which can be found in their explanation of benefits. After meeting the deductible, they may owe either coinsurance—a percentage of each bill—or a flat copayment, depending on their plan.

Take action today

• Check your health plan: Make sure you have an HSA-eligible HDHP.
• Open an HSA and start contributing: The earlier you start, the more you’ll benefit.
• Invest for long-term growth: Don’t just leave your money in cash—make it work for you.
• Reap the rewards: Enjoy tax advantages now and financial security later.

By making smart HSA decisions today, you’re taking control of your healthcare costs and preparing for a more secure retirement.

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