HSAs often an underused asset

Nearly 60 million Americans are covered by a health savings account (HSA) as of Dec. 31, 2024, according to Una encuesta reciente. However, fewer than 50% of recent survey respondents have an understanding of how to use their HSA for medical expenses or as an investment vehicle.

If you have access to an HSA but aren't using or fully utilizing it, you might be leaving an important financial planning resource on the table. "HSAs impact people's lives both now and in retirement. They can effectively help us manage healthcare costs and support long-term financial planning goals," said Montric Santee, a financial planner at BOK Financial®.

Many employers offer HSAs as part of their benefits package to help combat the out-of-pocket expenses associated with high-deductible health plans (HDHPs). If you're not sure if you qualify for an HSA, talk to your financial advisor or an HSA administrator. Here's also a quick guide to what HSAs are, what they can be used for and how to make the most of the benefits.

Contribution limits and tax breaks
If you have your HSA through your employer, you probably can elect to make regular pretax contributions with every paycheck, as you can with your 401(k). These pretax contributions lower your taxable income and can, in turn, decrease what you owe in taxes.

If you have carried an HSA over from a previous employer or a different administrator outside of your employer, you can make annual contributions from after-tax income and count them as a tax deduction. In that scenario, it's important to be aware that there are limits to how much you can contribute each year, similar to an IRA contribution, Santee said. "If your employer is also contributing to your HSA, remember that their contribution also counts toward your annual maximum."

For 2025, these limits are:

• Self-only coverage: Maximum contribution of $4,300.
• Family coverage: Maximum contribution of $8,550.
• Catch-up contribution: If you are 55 or older, you can contribute an additional $1,000.

It’s important to note that you must be enrolled in a qualifying HDHP at the time of the contribution and for one year after making the contribution.

If you’re approaching retirement age and preparing to go on Medicare, there are HSA contribution rules around that, as well.

“If you’re approaching age 65, you must stop contributing six months before that, and you can no longer contribute after you turn 65, but you can use your HSA funds for medical expenses during retirement,” said Santee.

Once-in-a-lifetime rollover from an IRA
If you want to quickly bulk up your HSA and you have an IRA account, you can take advantage of a once-in-a-lifetime transfer. This tax-free distribution, known as a qualified HSA funding distribution, allows you to rollover up to the contribution limit for the year from your IRA into your HSA and either use it as a tax-free withdrawal on medical expenses or invest it within the HSA.

Santee said to be mindful that this transfer rollover has the same requirements as a contribution, “You must stay enrolled in a HDHP for one year and you must factor it in if your employer is making contributions, so you don’t go over the contribution limit.”

A tool in your medical plan
HSAs also provide peace of mind of knowing you have funds to cover medical expenses as they arise, which may be especially pertinent amid rising health plan deductibles and healthcare costs. "The benefit of HSAs is that they allow account holders to save for future medical expenses with a triple tax advantage empowering people to save, invest and financially cover qualified," Santee explained.

Generally, you can use your HSA funds for qualifying medical expenses such as doctor copays and prescriptions, contact lenses and eyeglasses, dental work—basically anything that your high-deductible health plan doesn’t pay for or that falls under the deductible amount.

You can find a list of qualifying expenses online or call your HSA administrator to find out if a medical expense is covered. To pay for a medical expense, you can either use your HSA debit card or you can self-pay and save the receipt to submit at a later time for reimbursement.

It's also important to note that you cannot use your HSA to pay for medical expenses for a spouse or other family member. "There's no such thing as a joint HSA by definition; it is an individually owned account," said Santee.

Investment growth potential
One of the major benefits of an HSA is its potential for growth. "Not only do funds go in pre-tax or tax deductible and come out tax free, but they can also be invested and grow tax deferred," said Santee.

Just like an IRA or any other investment account, you can invest funds in your HSA in a variety of instruments like stocks, bonds, mutual funds, exchange-traded funds (ETFs) or money market funds. The specific investment options available depend on what your HSA administrator offers.

Plus, one of the perks of HSA investments is there is no vesting period. "You can use the funds as soon as you put them in the account," said Santee. However, she recommends leaving funds in the account to take advantage of tax-free growth.

In order to allow maximum growth, if possible, Santee suggests paying out-of-pocket for medical expenses and keeping all receipts. Using this strategy, you can allow the HSA funds to grow in the account for a few years or until you reach age 65 when you can no longer contribute, and then submit your receipts. There is no time limit or deadline in which you need to submit the receipts.

"You must be sure what you're submitting is for qualified medical expenses and keep good records. That means, save all your receipts and explanation of benefits (EOBs)," she stressed.

With all the benefits of HSAs at your fingertips, it's worth knowing how to maximize their use. If you have an HSA and aren't sure if you're contributing and investing, or how to use it for medical expenses, consult your financial planner or HSA administrator.