Don’t Have an HSA Yet? You’re Going to Regret That

What if I told you that you’re missing out on one of the best tax breaks and a bonus way to invest for retirement? It’s called a health savings account (HSA), and with annual enrollment coming up, you have another chance to get on board with an HSA for 2025. 

But if you don’t open an HSA, or if you don’t qualify based on your health insurance plan, you’ll miss out on some big tax benefits and long-term investment growth. 

Let’s look at a few reasons why not opening a health savings account is a move you’ll regret.  

How to open a health savings account (HSA) 

An HSA is a special type of investment account that you can use to save for healthcare expenses. But you can only open an HSA if you have a certain type of qualifying insurance plan, called a high deductible health plan (HDHP). 

Your choice of health insurance plan when you sign up or re-enroll at work, or through HealthCare.gov, decides if you qualify for a health savings account. To get an HDHP (and qualify for an HSA), for 2025, you need to choose a health insurance plan with: 

• Minimum annual deductible of $1,650 for self-only coverage or $3,300 for family coverage; and 
• Maximum annual out-of-pocket costs of $8,300 for self-only coverage or $16,600 for family coverage

The IRS limits HSAs to certain qualifying insurance plans like these, also called “HSA-eligible health insurance plans.” That’s because HSAs have powerful tax benefits, and the IRS rules don’t allow everyone to use them. 

Indeed, an HSA-eligible health plan might require you to pay more money in out-of-pocket healthcare costs compared to some other insurance plans. But if you can afford to cover those costs, choosing an HSA-eligible health insurance plan can be a smart move for your taxes and your long-term retirement savings. An HSA can help you save a lot more money than it costs.

Triple tax breaks

The health savings account is unique, because it offers a “triple tax break.” Here are the three ways an HSA can help you save money on taxes.  

1. Tax deductible contributions 

The money you contribute to an HSA is tax-deductible, up to a certain limit. For 2025, you can get a tax deduction for these amounts of HSA contributions: 

• $4,300 for self-only coverage
• $8,550 for family coverage 

Think of an HSA as an extra tax-advantaged account, like a 401(k) or traditional IRA, that reduces your taxable income. If you’re in the 22% tax bracket and you max out your HSA for a family health insurance plan, you’d save about $1,881 on your federal income taxes.  

2. Tax-free investment growth 

HSAs are not like bank savings accounts that only earn relatively low APY. You can use your health savings account like a brokerage account, and choose to invest your HSA money in a wide range of investment offerings, like stocks, bonds, and ETFs. This can help your HSA money grow for the long term. 

And your HSA money grows tax-free, without owing capital gains taxes or income taxes, as long as you leave it in the account and use the money for qualified healthcare expenses according to IRS rules. 

Caution: If you want to use your HSA money for healthcare expenses during the current year or the next few years, you might want to keep your HSA money in safe (but low-yield) assets like cash. Be careful when investing your HSA money in assets that might have a risk of investment loss in the short term.

3. Tax-free withdrawals for healthcare 

The stated purpose of a health savings account is to use the money to save for healthcare. You can use the balance of your HSA at any time to pay for a wide range of medical and dental expenses, like doctor visits, hospital bills, prescription drugs, dentistry, and orthodontic treatment.

Using an HSA to pay for healthcare costs is like getting a built-in discount on healthcare equal to your marginal tax rate. For example, if you’re in the 22% tax bracket, and you spend $1,000 per year on healthcare from money in your HSA, it’s like you’re only paying $780 and getting $220 back in tax savings. 

There’s one more bonus of having an HSA, but not everyone can take advantage of it. If you don’t spend your HSA money on healthcare, you can use it as an extra tax-deferred savings account, like a traditional IRA. That’s because, after you turn 65, you can take money out of a health savings account for any purpose — not just healthcare. 

Keep in mind that you’ll have to pay income tax on the money you take out of your HSA after 65 if it’s not for healthcare costs. But using your HSA in this way can still give you an extra retirement nest egg — with flexibility to use the money tax-free for healthcare in retirement, or taxed as income if you use it for other living expenses.  

Bottom line 

Opening an HSA can help you get big tax breaks now and into the future. A health savings account can work like an extra brokerage account or traditional IRA for healthcare, or help you save an extra pot of money for tax-deferred retirement income. Don’t miss out on the HSA “triple tax break.” Open a health savings account at annual enrollment if you qualify.