Health savings accounts (HSA) can be one of the most underutilized investment vehicles offered to individuals. HSA accounts are made available to those with a high-deductible health plan. Employers who provide these high-deductible plans are often the ones to provide access to HSA accounts, however individuals are able to open HSA accounts on their own as long as you can prove you are enrolled in an eligible plan.
HSA’s are triple tax-advantaged accounts allowing investors to:
1. Make pre-tax contributions to the account.
2. Invest the money inside of the account with tax-free growth.
3. Withdraw funds from your account for qualified medical expenses tax free.
According to a 2022 study by the Employee Benefit Research Institute, only 13% of people who hold HSA accounts have the money invested. The majority of people tend to use these accounts more like a savings account, missing out on the opportunity for growth.
As with all employee-sponsored savings accounts, rules and contribution limits are ultimately determined by the IRS and can be changed annually. For 2025, the annual contribution limit for an individual is $4,300, while the family limit is $8,550. If you are over the age of 55, an additional $1,000 per person may be contributed to the account.
HSA’s are powerful savings and investment tools that can be used for growth over time. For example, if you were to contribute the maximum of $8,550 every year for 10 years with an average growth of 6% year over year, you would have a balance of $113,000 to use towards medical expenses. These distributions could then be taken to reimburse qualified medical expenses tax-free.
Unlike flex-savings accounts, HSA funds roll over year over year and can be used at any point. For future retirees, this allows investors the opportunity to have an account specifically earmarked for medical expenses, leaving other investment and savings accounts to pay for other retirement-related expenses and experiences.
HSA’s generally require $1,000 to be held in cash within the account to pay for medical expenses. The remainder of the balance is then free to be invested. It is best to check with your plan provider for best practices and plan rules as they may vary.
As you near 65 years old, it is important to be mindful about the contributions made into your HSA account, as there are IRS rules in place that prohibit you from contributing once you are on Medicare. Consult your tax or financial advisor within six months of enrolling in Medicare to ensure you will not be overcontributing to your account based on these limits.
If you are enrolled in a high-deductible health insurance plan, talk to your benefits provider about HSA options and consider making contributions to this account. Be sure to actively invest the funds and take full advantage of the many tax savings benefits it provides both now and for your future.
If you would like to learn more and have a deeper conversation about how to maximize your workplace benefits and retirement savings, reach out for a complimentary consultation.
Katie Geery, MBA, CFP, APMA, CRPC, is a financial advisor and certified financial planner practitioner with Rise Private Wealth Management, a private wealth advisory practice of Ameriprise Financial Services, LLC, in Bedford, NH. Contact her via ameripriseadvisors.com/katie.geery, or Katie.Geery@ampf.com.
