Rosalind Evans
Health savings accounts (HSAs) offer powerful tax benefits that can boost both savings and investments. However, many people remain unaware of how to use these accounts effectively. With over 26 million Americans holding HSAs, it’s essential to understand their benefits and learn how to make the most of them.
HSAs Are Growing, but Awareness Is Lacking
According to research firm Devenir, the popularity of HSAs has surged, with assets climbing to $137 billion by mid-2024. These accounts are projected to grow even more, reaching $175 billion by 2026. Todd Katz, executive vice president of group benefits at MetLife, stated, “We are seeing growth in the number of people who sign up.” He noted that the favorable market environment has also boosted HSA balances.
Despite their benefits, half of U.S. adults remain unclear on how HSAs work. A survey by Empower, a financial services company, found that only 34% of employees with HSA access participate, and just 24% of those participants actively fund their accounts.
Tax Benefits: Why HSAs Are ‘Unmatched’
Christine Benz, director of personal finance at Morningstar, emphasized the unique advantages of HSAs, saying, “HSA benefits are unmatched, relative to Roth IRAs or 401(k)s. You just don’t see tax benefits like that.”
HSAs allow users to save in three tax-advantaged ways. First, contributions are made with pre-tax dollars. As long as the funds remain in the HSA, they are not taxed. Finally, withdrawals for qualified health expenses are tax-free, giving account holders a tax break at every step.
To qualify for an HSA, individuals must be enrolled in a high-deductible health plan (HDHP). In 2025, the IRS defines HDHPs as plans with deductibles starting at $1,650 for individuals or $3,300 for families. These plans also cap out-of-pocket expenses at $8,300 for individuals and $16,600 for families.
Balancing Health Costs with Long-Term Savings
While high-deductible health plans often come with lower monthly premiums, the challenge lies in meeting steep deductibles during emergencies. Experts recommend that, where possible, individuals cover medical costs out of pocket to allow HSA investments to grow. However, using the account for non-medical expenses before age 65 triggers income taxes plus a 20% penalty. Those aged 65 and older avoid the penalty but must still pay income taxes on non-medical withdrawals.
“There’s a lot to think about,” say financial experts, advising that individuals carefully evaluate their financial situation before contributing to an HSA. “You need to run the numbers,” Benz added, stressing the importance of planning.
Take Full Advantage of Your HSA
An HSA can be a valuable financial tool with its triple-tax benefit and flexibility. However, it requires careful planning and a solid understanding of the rules. As Christine Benz pointed out, these accounts offer tax advantages unmatched by other savings options, making them worth exploring for those eligible. Whether you are looking to invest for the future or manage healthcare expenses wisely, maximizing the potential of your HSA can yield long-term financial rewards.
