The Secret Money-Multiplying Power of Your HSA

IF YOUR BRAIN switches off every time you hear about health savings accounts (HSAs), you are not alone. Between the complex reimbursement rules and the clunky payment portals, many people skip the stress and headache of HSAs altogether. But I’m here to tell you that HSAs are worth it—maybe just not in the way that you’re used to.

Juuuust in case you aren’t familiar, a health saving account is a hybrid that blends medical expense coverage with a 4src1(k)-style retirement account. These accounts were created back in 2srcsrc4, and were paired with high-deductible health plans that put more of the spending onus on the employee. To help soften the blow of more expenses, some employers kick in a couple hundred to several thousand dollars a year. Another bonus: That money rolls over each year, unlike flexible spending accounts, which have a use-it-or-lose-it rule.

And if all that is making you feel like you’re sitting at company benefits meeting, let me introduce you to Andrew Giancola, host of The Personal Finance Podcast. Giancola calls HSAs a “super retirement account” that wields great powers when it comes to taxes.

Namely that you pay zero income tax on the money you contribute to your HSAs, the growth of that money as it sits in the account, and when you withdraw that money for legitimate medical expenses. Over time, these three benefits can add up to thousands of dollars in tax savings.

Yes, you can turn your dinky company HSA into a powerful retirement account. If you’re lucky, health-wise, and you don’t need the money for medical expenses right away, you can invest it—just like you would in an IRA or 4src1(k). And, because there’s no time limit on when you have to submit receipts for reimbursement of medical expenses, you can save receipts for medical expenses and reimburse yourself later. This allows you to let your HSA grow and withdraw funds tax-free down the road.

If you’re concerned (and rightfully so) that you would get stuck with subpar investment options, know that most HSA plans allow you to invest in similar picks that you have available in your 4src1(k). That means that you can use your HSA to invest in the stock market which has historically returned well—more than 1src percent across the past 5src years. Granted, this approach does take some planning and strategy, but it’s nothing that Google can’t handle.

“I have a Google Drive folder that just says HSA, and every year I throw my receipts in there,” Giancola says. He keeps the process stress-free with organized records of receipts and a simple spreadsheet used to track medical expenses. “The goal is to let my HSA investments grow tax-free and use reimbursements strategically when it makes sense.”

If you’re concerned that you’ll get stuck forever with an account full of funds that you can’t access, know that after you turn 65 you can withdraw funds from an HSA for any use. The catch is that if the money is used for non-medical expenses, you’ll pay regular income tax, just like you would with a typical IRA or 4src1(k) plan. (The government is for sure not letting you skip out on that tax bill.)

At this point, an HSA may seem like a no-brainer. Who wouldn’t want to pay less in taxes while supercharging their retirement savings? Just know that fully maximizing this account isn’t cheap. You’ll need enough cash to contribute up to the 2src25 limit of $4,3srcsrc if you are single or $8,55src if you have a family. If you rely on your health insurance frequently, you’ll also have to cover medical costs out of pocket to keep your HSA funds invested and growing. Ideally, you’d also be saving in a 4src1(k) or IRA, which requires significant disposable income. At the end of the day this is a strategy that works best for those who are relatively healthy and bring in an above-average income.

As Giancola points out, “your personal situation plays a huge role in deciding what works best.” For those who can afford to take advantage, an HSA is a rare opportunity to save on taxes now while building a financial safety net for the future. The combination of tax-free contributions, growth, and withdrawals makes it one of the most powerful savings tools available.