America's Ultimate Tax-Advantaged Account: The HSA
A Health Savings Account (HSA) is more than just a healthcare fund. It's the only account that offers a triple-tax advantage—tax-free contributions, growth, and withdrawals—making it a powerful tool for tax savings, wealth accumulation, and retirement planning. Explore everything an HSA has to offer with this guide.
Tax-Deductible Contributions
Your contributions reduce your taxable income, saving you money on taxes immediately.
Tax-Free Growth
Investment earnings in the account are not taxed, maximizing the power of compounding.
Tax-Free Withdrawals
You can withdraw funds for qualified medical expenses without paying a single penny in taxes.
Am I Eligible for an HSA?
To be eligible to open and contribute to an HSA, you must meet all of the following conditions as of the first day of any month. Use this simple checklist to confirm your eligibility.
-
✔️
Are you covered under a High-Deductible Health Plan (HDHP)?
This is the most fundamental and essential requirement for an HSA. For 2025, the plan must have a minimum deductible of $1,650 for self-only coverage or $3,300 for family coverage.
-
✔️
Do you have no other health coverage besides your HDHP?
You cannot be enrolled in other disqualifying coverage, such as Medicare (any part) or a general-purpose FSA. (Coverage for dental, vision, or accidents is permitted.)
-
✔️
Can you not be claimed as a dependent on someone else's tax return?
You must be an independent taxpayer to be eligible to contribute to an HSA.
If you answered "Yes" to all three questions, you are eligible to enjoy the powerful benefits of an HSA!
For 2025, How Much Can You Save?
HSA contributions are directly deducted from your taxable income. Use the calculator below to see your estimated tax savings. Contributions made through payroll deductions are particularly powerful, as they avoid both income tax and FICA taxes (7.65%).
Annual Contribution Limits (2025)
My Estimated Tax Savings
Estimated Annual Tax Savings:
(Assumes 24% federal tax bracket and 7.65% FICA tax)
Watch Your Assets Grow, Tax-Free
The true power of an HSA lies in its tax-free growth. Earnings that would be taxed away annually in a regular brokerage account are reinvested in an HSA, creating a snowball effect over time. See the powerful impact of compounding in the chart below.
This chart compares the 30-year growth of an HSA (tax-free) versus a standard taxable brokerage account (assuming 15% capital gains tax), based on maxing out contributions each year with an average annual return of 7%.
How Can I Use My HSA Funds?
HSA funds receive their 100% tax-free benefit when used for 'Qualified Medical Expenses' (QMEs). You can use them for a much wider range of items than you might think. Search or filter the list below to find eligible expenses.
- No results found.
The Ultimate Retirement Account: HSA Strategies
An HSA is more than a medical account; it offers benefits superior to any other retirement vehicle. After age 65, there's no penalty for non-medical withdrawals, and there are never any Required Minimum Distributions (RMDs). Learn advanced strategies to get the most out of your HSA.
HSA vs. Other Retirement Accounts
| Feature | HSA | Traditional 401(k)/IRA | Roth 401(k)/IRA |
|---|---|---|---|
| Taxes on Contributions | Deductible | Deductible | Not Deductible |
| Taxes on Growth | Tax-Free | Tax-Deferred | Tax-Free |
| Taxes on Withdrawals (Qualified) | Tax-Free | Taxable | Tax-Free |
| FICA Tax-Free (Payroll) | ✔️ | ❌ | ❌ |
| Required Minimum Distributions (RMDs) | None | Yes | Yes (except Roth IRA) |
Advanced Strategies
This strategy leverages the HSA to its fullest potential. Pay for current medical expenses out-of-pocket, not with HSA funds, and save all your receipts. Let your HSA funds grow tax-free for decades. Later in life, when you need cash, you can "reimburse" yourself from the HSA for the total amount of all your saved receipts. This withdrawal is 100% tax-free, effectively creating a tax-free cash flow for any purpose.
How an HSA is taxed upon death depends entirely on the beneficiary.
- Spouse: The HSA transfers to the spouse and maintains all its tax advantages. (Best-case scenario)
- Non-Spouse: The entire account value becomes taxable income to the beneficiary in the year of death. (The "tax bomb")
Strategy: Always name your spouse as the primary beneficiary. If you plan to leave it to a non-spouse, consider strategically spending down the balance on medical expenses during your lifetime.
Once you enroll in Medicare, you can no longer contribute to an HSA. The critical catch is that when you apply for Social Security benefits, your Medicare Part A coverage can be backdated by up to 6 months. Any HSA contributions made during this look-back period become "excess contributions," subject to taxes and penalties. Therefore, you must stop all HSA contributions at least 6 months before you plan to enroll in Medicare.