While HSAs have grown in notoriety over time, their benefits are still underutilized by many Americans who have them.
In an article for the Wall Street Journal, “Confused About Health-Savings Accounts? Here’s What to Know,” NFP’s Jared Benson, vice president and retirement plan consultant, discussed the importance of investing money into an HSA.
“While HSA money ideally should be allowed to accumulate and increase through investing, there are people who choose a high-deductible plan because it has a cheaper premium. An HSA can work for them, too, Benson says.” Benson talks about how the money saved monthly from electing a high-deductible plan, if possible, should go into an HSA.
“Instead of spending that savings elsewhere, he recommends they invest the money in an HSA, reap the tax benefits, and use it as medical expenses come up or down the road for retirement if they are able.”
Common Questions About HSAs Explained
Who can use an HSA?
To contribute to an HSA, you must be on a high-deductible health plan, offered by your employer. High deductible plans aren’t for everyone, and you should consider your own and your family’s health and the amount of potential out-of-pocket costs for a high deductible plan.
Why consider an HSA?
HSAs have many advantages, including tax benefits as well as the potential for your money to grow significantly over time. Contributions to HSAs aren’t subject to federal income tax if used for medical expenses, and earnings in the account grow tax-free.
Unspent money in an HSA rolls over at the end of the year and the money you put in your HSA has no expiration date. It will stay in your account forever, and can be used tax-free for medical expenses even after you retire.
What can HSA funds be used for?
HSA funds can be used for many types of medical expenses, including deductibles, copayments and coinsurance. After age 65 or upon becoming disabled, the money can be withdrawn tax-free for medical expenses, or with income tax on the amount withdrawn for other uses. Note that there is a 20% penalty if you withdraw for non-medical expenses before turning 65 or becoming disabled.
How often should I adjust my investments in an HSA?
Like other investments and retirement accounts, those with HSAs should reassess their investment options at least once a year and should be adjusted to fall in line with overall target allocations and risk tolerance.
Can I contribute to a 401(k) and an HSA?
Yes — and you likely should. Many people are already aggressively contributing to their 401(k) but aren’t fully utilizing their HSA to its maximum potential. Note that the HSA contribution limit is adjusted each year and is higher for participants 55 and older. For 2025, the limit is $4,300 for self-only accounts, with an additional $1,000 allowed if you’re 55 or older.
It may be beneficial to contribute to your 401(k) up to your employer’s match, if they offer a match, and then contribute to the HSA because of the likelihood of needing the money for medical expenses in retirement. Once the HSA is maxxed out, you can continue to fund the 401(k) further, to its applicable limits.