Why I Love HSAs

One of my favorite tools for creating meaningful tax savings is the Health Savings Account (HSA). HSAs offer a triple tax benefit — contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are also tax- free.

Qualification: To contribute to an HSA, you must be enrolled in a high-deductible health plan. Your health plan summary should indicate whether your plan qualifies, but generally, this would be a minimum deductible of $1,650 for a single plan and $3,300 for family, with set out of pocket maximums as well.

Tax Deduction: If you qualify for an HSA, you can contribute up to $4,300 if you have a single plan, and $8,550 for a family for tax year 2025, plus an additional $1,000 if you are 55+. Contrary to a Traditional IRA, an HSA contribution is a tax deduction, regardless of your income level. For a couple in the 22% tax bracket, this could yield a $1,800 tax savings.

Tax-free growth: If you’re able to leave your HSA funds untouched year to year, you can invest them just like a retirement account. The funds grow tax-free, and distributions remain tax-free when used for qualified medical expenses. This allows the account to serve as a powerful long-term wealth-building tool for future healthcare costs.

Emergency Fund: HSAs also offer surprising flexibility. You don’t have to take a distribution in the same year you pay a medical bill. For example, you could save your receipts over several years and later reimburse yourself in a lump sum — perhaps during a financial emergency. This allows you to grow the account and use it as an additional emergency savings account. Unlike FSAs, you can keep the HSA indefinitely, even if you leave your employer or health plan.

Payroll Deductions: Many employees assume they can only contribute through payroll deductions, but that’s not true. While payroll contributions are ideal because they also save you FICA taxes (an additional 7.65%), you can still contribute directly to your HSA provider to max out your annual limit. These contributions can be made up to April 15 for the prior tax year.

With the expanded qualified medical expenses included in recent legislation and the continuing rise in medical costs, contributions to an HSA will never go to waste. If you have access to an HSA-eligible plan, make sure you’re taking advantage of this triple tax benefit.