Get the most from your Health Savings Account with strategies for maximizing contributions, investing your balance, and using the triple tax advantage for long-term wealth building.
Confirm you have a qualifying High Deductible Health Plan
For 2024, a qualifying HDHP has a minimum deductible of $1,600 for individual coverage or $3,200 for family. Maximum out-of-pocket limits are $8,050 individual and $16,100 family.
Verify you have no disqualifying coverage
You cannot contribute to an HSA if you are enrolled in Medicare, covered by a non-HDHP spouse's plan, or claimed as a dependent on someone else's tax return.
Open an HSA with a provider that offers investment options
Many employer-provided HSAs charge monthly fees of $2-5 and offer limited investment choices. You can transfer your balance to a different HSA provider at any time without tax consequences.
Contribution Strategy
Contribute the maximum allowed amount
The 2024 limits are $4,150 for individual coverage and $8,300 for family coverage. If you are 55 or older, you can contribute an additional $1,000 catch-up contribution.
Set up payroll deductions to avoid FICA taxes
Contributions through payroll deductions skip both income tax and the 7.65% FICA tax (Social Security and Medicare). Direct contributions only avoid income tax. This difference saves $300-635 per year at max contribution.
Front-load contributions early in the year if possible
Contributing the full amount in January gives your investments 11 extra months of growth compared to monthly contributions. Over 20 years, this timing difference can add $10,000-20,000 to your balance.
Use the last-month rule if you enrolled in an HDHP mid-year
If you have qualifying HDHP coverage on December 1, you can contribute the full annual limit regardless of when you enrolled. You must maintain HDHP coverage through December 31 of the following year.
Triple Tax Advantage
Understand the three tax benefits of an HSA
Contributions are tax-deductible (or pre-tax via payroll), growth is tax-free, and withdrawals for qualified medical expenses are tax-free. No other account offers all three benefits simultaneously.
Pay medical expenses out of pocket and let HSA funds grow
There is no deadline for reimbursing yourself from your HSA. Pay medical bills from your checking account now, save receipts, and withdraw from your HSA years later after the balance has grown tax-free.
After age 65, use HSA funds for any expense without penalty
After 65, non-medical withdrawals are taxed as ordinary income (like a traditional IRA) but have no 20% penalty. Medical withdrawals remain completely tax-free at any age.
Investment Strategy
Move funds above your cash threshold into investments
Keep 1-2 years of expected medical expenses in cash and invest the rest. Most HSA providers require a minimum cash balance of $1,000-2,000 before you can invest the remainder.
Choose low-cost index funds for long-term growth
Select broad market index funds with expense ratios under 0.10%. Over 25 years, a 0.50% fee difference on a $100,000 balance costs you over $30,000 in lost growth.
Rebalance your HSA investments annually
Treat your HSA investments as part of your overall portfolio allocation. If your target is 80% stocks and 20% bonds, include HSA holdings in that calculation alongside your 401(k) and IRA.
Receipt Management and Record Keeping
Save every medical expense receipt digitally
Scan or photograph receipts and store them in a dedicated folder organized by year. You may reimburse yourself decades later, so keep records indefinitely. The IRS can request proof of qualified expenses.
Track the running total of unreimbursed medical expenses
Maintain a spreadsheet listing each expense with date, amount, description, and receipt file name. This running total represents the maximum you can withdraw tax-free at any point in the future.
Know which expenses qualify for HSA reimbursement
Qualified expenses include doctor visits, prescriptions, dental, vision, and mental health services. Over-the-counter medications and menstrual products qualify since 2020. Cosmetic procedures and gym memberships do not qualify.
Medicare Transition Planning
Stop HSA contributions 6 months before Medicare enrollment
Medicare Part A is retroactive up to 6 months. If you enroll in Medicare at 65, stop HSA contributions by age 64 and 6 months to avoid excess contribution penalties of 6% per year.
Use HSA funds to pay Medicare premiums tax-free
HSA funds can pay Medicare Part B premiums ($174.70/month in 2024), Part D premiums, and Medicare Advantage premiums tax-free. They cannot pay Medigap supplemental premiums.
Plan to use remaining HSA funds for retirement healthcare costs
The average couple needs $315,000 for healthcare in retirement. Your HSA can cover Medicare premiums, copays, prescriptions, dental, and vision expenses tax-free throughout retirement.
Frequently Asked Questions
What is the triple tax advantage of an HSA?
Contributions are tax-deductible (or pre-tax through payroll), invested funds grow tax-free, and withdrawals for qualified medical expenses are tax-free at any age. No other account in the US tax code offers all three benefits simultaneously. A family contributing the maximum $8,300 (2024) annually for 20 years at 7% average returns could accumulate over $400,000 in tax-free medical funds.
Can I invest my HSA balance in stocks?
Yes, most HSA custodians offer investment options once your balance exceeds a cash threshold (typically $1,000-$2,000). Fidelity HSA has no minimum investment threshold and offers zero-fee index funds. The strategy of paying current medical expenses out-of-pocket while investing your full HSA balance allows decades of tax-free compound growth. Keep receipts for all medical expenses, as you can reimburse yourself from the HSA at any point in the future with no time limit.
What happens to my HSA when I turn 65 and enroll in Medicare?
You can no longer contribute to an HSA once enrolled in Medicare Part A (which is automatic at 65 if you receive Social Security). However, your existing balance remains yours for life. You can still withdraw tax-free for qualified medical expenses including Medicare premiums (Parts B, C, D but not Medigap), dental, vision, hearing aids, and long-term care expenses. Non-medical withdrawals after 65 are taxed as ordinary income but carry no 20% penalty.
What qualifies as an HSA-eligible health plan?
For 2024, your health plan must have a minimum deductible of $1,600 (individual) or $3,200 (family) and maximum out-of-pocket of $8,050 (individual) or $16,100 (family). The plan must be your only health coverage, though you can also have dental, vision, and specific-disease insurance. You cannot be enrolled in Medicare, claimed as a dependent, or have a general-purpose FSA (limited-purpose FSA is allowed).