If you’re looking for ways to take control of your healthcare costs and maximize your savings, a Health Savings Account (HSA) may be the perfect solution. An HSA not only allows you to set aside money to cover future medical expenses but also comes with many exclusive benefits that make it an attractive option for individuals looking to save on healthcare expenses.
In this article, I will show you the top 7 benefits of a Health Savings Account that you should consider and how to qualify for an HSA account.
What is a Health Savings Account?
A health savings account or HSA is a tax-exempt plan that lets you save money for health-related expenses. To qualify for the HSA plan, you must be enrolled in a High Deductible Health Plan (HDHP). Some of the benefits of choosing an HSA plan include but are not limited to saving for retirement, lowering your taxable income, and paying for health-related expenses.
Not everyone can choose an HSA plan. Health Savings Accounts require individuals to have a High Deductible Health Plan(HDPH).
What can you pay with an HSA account?
The HSA account allows you to pay for qualified healthcare-related expenses. According to Healthcare.gov, you can use your Health Savings Account to pay copayments, deductibles, coinsurance, doctor visits, hearing aids, prescription drugs, acupuncture, ambulance costs, qualified long-term care services, and psychological therapy/psychiatric care.
Here are the top 7 benefits of choosing an HSA plan.
HSA plans are designed to help people pay for health-related expenses. Medical expenses are some of the hardest for millions of people to pay off. Some people declare bankruptcy due to medical bills. According to kff.org, 1 in 10 adults struggle with medical bills or debt related to medical expenses. In addition, millions of people owe, on average, more than $10,000 in medical-related debt.
BY contributing to your HSA plan, you get to save for future medical uncertainties. The money you have in your HSA plan can be used to cover coinsurance, your deductible, and copays. If there are some expenses that your insurance does not cover, you can use the money in your HSA to cover those expenses. These expenses include but are not limited to dental care, orthodontia contacts, eyeglasses, etc.
Every expense on your HSA plan must be eligible. Using your HSA money for unqualified medical expenses results in taxes and penalties.
2. You are in control of your HSA account
You’re in control of all the money inside your SHA plan. You can decide how much you want to invest or keep inside the HSA plan. Every dollar you contribute to the plan is yours until you use or withdraw it.
Unlike a Flexible Spending Account(FSA) where you lose your money if you do not spend it by the end of the enrollment year; all unused funds inside your HSA will be rolled over to the following year. This gives you complete control and stability of your HSA plan.
3. An HSA plan can help you save for retirement
There are countless ways to save for retirement. Most people only know about standard retirement savings plans such as 401(k), Roth IRAs, and Traditional IRAs.
The health savings account can also help you achieve your retirement savings goals. How can you use your HSA as a retirment savings plan?
The key is to invest and keep the money in your HSA without withdrawing it. This will allow you to grow your account without paying taxes on earnings, just like retirement plans. In addition, keeping the money in the account will prevent you from paying the penalty for non-qualified health expenses.
When you turn 65, you can use the money in your HSA without a penalty. Following this strategy, your HSA account will serve the same purpose as a standard retirment plan. Since contributions to your HSA are tax-deductible, you will pay tax on any withdrawal from the account regardless of age(for non-medical-related expenses).
4. Your HSA account is an investment
Every year, you are eligible to make contributions to your HSA plan. As you grow your amount, there is a certain level where you will be eligible to invest some of the money in your HSA. This is one of the best benefits of the HSA plan. Investment options for the account will include some of the following: ETFs, Mutual Funds, Stocks, etc.
5. Tax-free growth
If you do not withdraw the money in your HSA plan, you will grow the account tax-free through different investments. In other words, any earnings you make in the account can be reinvested without paying tax to allow the compound interest effect. Your contributions can be used for medical-related expenses or invested annually based on your preferences.
6. An HSA plan gives you upfront tax benefits
One of the benefits of choosing the HSA plan is that it gives you direct and upfront tax benefits. Every dollar you put in your HSA comes from your before-tax money or is tax-deductible. Those contributions automatically reduce your taxable income for the year you contributed to the plan.
7. Your HSA plan is Portal
One great benefit of the HSA plan is that it stays with you no matter who you work for or how long. When you change employers or leave work, you keep the money until you use it on medical-related expenses or withdraw your funds.
Who is eligible to offer an HSA plan?
Before starting an HSA plan, remember you can only open an HSA through a trustee. A trustee is anyone approved by the IRS who can include:
- Bank
- Insurance company, or
- Any other entity approved by the IRS to be a trustee of IRAs or Archer MSAs.
Who is eligible to choose an HSA plan?
You don’t need permission from the IRS to open an HSA plan. However, there are specific requirements you must meet before you are eligible to choose an HSA plan. The following are the requirements for an individual before selecting an HSA plan.
- You have no other health coverage except what the IRS accepts through other health coverages.
- You are covered under a high-deductible health plan(HDHP)
- None can claim you as a dependent on their tax return for the previous tax year
- You don’t have Medicare
What are the maximum contributions to HSA plans
Like any other tax-exempt plan, there are limits to how much you can contribute to your health savings plan. The limit will depend on your filing status.
Everyone eligible for the HSA plan can make contributions to the plan.
For 2025, you can contribute up to $4,300 if you have self-only HDHP coverage. If you have family HDHP coverage, the maximum contribution to your health savings plan is $8,550. For 2024, you can contribute up to $4,150 for self-only coverage and $8,300 for family coverage.
| Status | Contribution limits 2025 | Contribution limits 2024 |
| Self-only HDHP coverage | $4,300 | $4,150 |
| Family HDHP coverage | $8,550 | $8,300 |
What are the maximum and minimum annual deductibles for HSA in 2025?
According to Newfront, The following are the minimum and maximum yearly deductibles for an HSA plan in 2025.
| Features | Self-HDHP | Family HDHP |
| Minimum annual deductible | $1,650 | $3,300 |
| Maximum annual deductible plus other out-of-pocket expenses | $8,300 | $16,600 |
When is the best time to open an HSA?
One of the benefits of HSA that makes it superior to FSA is that you can open an account at any time as long as you meet the minimum requirements. You don’t need a job or experience to open an account. However, you must be enrolled in a High Deductible Health Plan(HDHP) to open an HSA. Other eligibility requirements include not having Medicare, no one can claim you as a dependent, and no extra coverage except what the IRS accepts through other health coverages.
The best time to open an HSA is as soon as possible, especially when you are still in your 20s and 30s. This is because your savings can be compounded over time due to yearly savings and the interest you earn if you invest your savings. With this strategy, an HSA gives you benefits similar to a traditional IRA, allowing you to grow your net worth.
What happens to HSA money if you don’t spend it?
Unlike flexible spending accounts, where you risk losing your funds if you don’t use them during the benefit period, you do not lose HSA funds that are not spent. Instead, the money that is not used is rolled over from year to year. You can also keep adding more tax-free savings to the account and earn tax-free interest on the account when invested.
What is the HSA penalty for nonmedical expenses?
HSA is designed to help you cover qualified medical expenses. According to the IRS, if the funds are used for non-medical or unqualified healthcare expenses, the used funds will be subjected to an income tax, and you might pay a 20% tax penalty.
Here is a summary of HSA withdrawal rules.
- If you withdraw money from your HSA before 65 for nonmedical or unqualified healthcare expenses, you will pay an income tax and a 20% tax penalty on the money you withdrew or spent.
- If you withdraw money from your HSA after 65 for non-medical costs, you will only pay an income tax, but the 20% penalty will be waived.
- Finally, if you used your HSA money for qualified medical expenses at any age, you will not pay tax or a penalty.
The bottom line
The health savings account is one of the best accounts that can help you cover your health-related expenses and save for retirement at the same time. This is possible through the HSA tax advantages, investment options, tax-free growth, pre-tax contributions, and complete ownership of the money in the account.
