Financial Advisor Explains: How To MAXIMIZE Your HSA!

Guys, I am SO excited to talk about this, because we at Money Guy LOVE helping folks build wealth for their financial future and sometimes, that includes showing people that there may be a better path forward. And that’s what we want to show you today. This is truly one of the most powerful tools in your wealth building arsenal. And it’s called the Health Saving Account—or HSA.

Now, there is a good chance that you’ve actually heard of HSAs, and maybe you even know a little bit about them. For those that don’t, they are basically a type of tax-advantaged savings account offered to individuals enrolled in a High-Deductible Health Plan, and the funds in the account can be used to pay for qualified medical expenses. And we’ll get into what exactly each of those terms mean later on in the video. You can use an HSA offered through an employer, or you can open your own through a large provider like Fidelity. As of 2025, they have contribution limits of $4,300 for individuals and $8,550 for families. And if you’re 55 or older, you can contribute an additional $1,000 a year. One thing you can o regardless of your age, is SMASH that like button, though! Show it some love.

We should note that these differ from Flexible Spending Accounts, or FSAs, in a few ways. FSAs are generally “use it or lose it” accounts, so they need to be used as a clearing account year-to-year. HSAs are not, meaning that they can be used as a long-term saving vehicle.

And simply opening up an HSA and contributing is an awesome first step; getting a tax deduction on contributions and having that money set aside is great, but even that is not a step that a lot of folks take. In fact, only 10% of Americans actually use an HSA at all. Meaning if you just open and contribute to an HSA can ut you in a better spot than 90% of Americans! But what if I told you that you could go one step further? That there is another way to use an HSA—one that allows you to invest those dollars and let them grow? Not only that, but that HSAs actually offer one of the most significant tax-advantaged benefits of any type of account? Let’s break it down.

HSAs offer a triple- and potentially quadruple- tax advantage when you contribute and invest. The contributions you make to your HSA are tax-deductible (that’s one). When invested, those dollars grow-tax-deferred (that’s two), and then, when withdrawn in retirement for qualified medical expenses, those dollars are taken out tax-free (that’s three). In addition, if your employer allows you to contribute directly to your HSA via salary deferral, those dollars won’t be subject to FICA taxes, which are comprised of Social Security and Medicare. That’s QUADRUPLE tax-advantaged!

But let’s break this down to show just how much FURTHER your dollars stretch by contributing to an HSA versus something like a Taxable Brokerage. For the example, let’s assume a $100,000 income in a state with no income tax, like Tennessee.

We’re going to use marginal tax rates for this example, since HSA contributions come from the dollars taxed at your marginal rate. A $100,000 income has a marginal federal tax rate of 22%, and an employee’s FICA tax obligation is 7.65%. Meaning that those dollars that hit your bank account are potentially taxed at almost 30%. But HSA contributions bypass ALL of those. No tax bill on the front-end and no tax bill on the back-end when taken for qualified medical expenses in retirement.

And if you do this, there’s actually an additional level of optimization. You can pay for your medical expenses out of pocket, just from a regular checking account and keep records of what it cost. Then, you can continue to let your HSA dollars build up while invested. And then, at some point in the future, you can reimburse yourself with those dollars that have compounded and grown over time.

That means you can get the best of both worlds! You can invest your HSA dollars and STILL use them to pay for those past medical expenses at some point in the future! And there’s no time limit on this, meaning you can let your dollars grow for years and years, until that expense is just a little blip on the radar.

And yet, of that 10% that use an HSA, only 13% actually take advantage and INVEST in their HSA! That means that only 1.3% of people are investing in an HSA and taking advantage of this tremendous wealth-building tool! If you want to be better with money than 99% of Americans, this is how you do it!

Now, some folks aren’t gonna be able to take advantage of an HSA, and in some cases it may not make sense to. Remember, you need to be enrolled in a High-Deductible Health Plan to contribute to an HSA, meaning if you’re someone who incurs a lot of medical expenses every year, or you’re expecting lots of medical bills in a specific year due to something like a pregnancy, it may make sense to forgo the HSA in favor of better coverage and a lower deductible or out of pocket maximum.

But how do you actually KNOW that you have a HDHP and are HSA-eligible? If you aren’t sure if you’re enrolled in a High-Deductible Health Plan or what counts as a Health-Deductible Health Plan, go take a look at your plan summary, and there are two things I want you to find—those are your “deductible,” and your “out-of-pocket maximum.” Your deductible is the amount that you must pay before insurance starts helping out, and your out of pocket maximum is the most you’ll pay in a year, before insurance pays entirely for covered expenses. There may also be an “HSA-eligible” checkbox, either checked or unchecked, that will tell you.

Per the IRS’ 2025 guidelines, for a plan to be HSA-eligible, or to count as a “High-Deductible Health Plan,” your deductible must be at least $1,650 for an individual, and $3,300 for families. In addition, the plan’s out-of-pocket limit must be no higher than $8,300 for an individual plan, or $16,600 for a family plan. If your plan meets those two criteria, you are likely HSA-eligible!

Once you’ve confirmed that you’re HSA-eligible, it’s time to start contributing. If your employer offers an HSA, you likely don’t need to worry about opening your own. Even if your employer plan has high expenses and fees and poor investment options, the FICA tax break you receive for contributing may be worth it. If there’s nothing you can do about a poor employer HSA, you may be able to transfer funds to an outside HSA while still employed to get better investment options and lower your fees and expenses. If you don’t have an HSA through your employer, you’ll have to open your own. The great news is it is very easy to do. Fidelity offers an HSA with no account fees and a wide range of low-cost investment options.

Remember though, whether you use the account for current expenses or reimburse yourself for old ones, that can be used to pay for what are called “qualified medical expenses.” There’s a lot that goes into what counts as a “qualified medical expense,” but a quick way to check can be to take a look at healthequity.com or hsastore.com. They have huge databases of services and products that are covered as qualified medical expenses.

And the really good news is that, if you start earlier enough, these accounts can fully fund any and all healthcare expenses in retirement, meaning all your other retirement assets can be used to go and live the life you want. Don’t believe me? Let’s look at the numbers.

In Fidelity’s 2024 edition of their retiree benefits study, they found the average retiree’s healthcare expenses for a full retirement was around $165,000. Adjusted for 3% inflation, that means a single retiree in 2055 should expect to pay about $400,000 in healthcare expenses. And we know that the current contribution limit for individuals is $4,300. Well, assuming there are no contribution limit increases, if you just maxed out an HSA at an 8% return over 30 years, that investment would grow to about $530,000. You’ll actually money left over!

With that, though, a lot of people have questions and concerns surrounding overfunding their HSA. If they have too much money in their HSA from investing it and letting it grow, does that mean all the sudden that all that money’s gone to waste? No. First and foremost, having too much tax-free money? Pretty good problem to have.

More seriously though, that are no penalties on distributions taken for non-qualified expenses in retirement, but they are taxed as ordinary income, similar to a traditional 401(k) or a traditional IRA. Idk how to word this but because that $530,000 is triple or quadruple tax advantaged, you’re only paying that ordinary income tax on the excess, or ~$130,000. Whereas if you had just loaded up a 401(k) with that money instead, you’d be paying taxes on all of it as ordinary income in retirement. So, at worst, your excess HSA funds are going to act as a “backup retirement account.” That’s the power of an HSA—it allows you to stretch your dollars that much further!

So, if you have access to an HSA, and you’re at the place in your financial journey where it’s time to start building wealth, do not miss out on these advantages! Start supercharging your tax-advantaged accounts and build yourself a great, big beautiful tomorrow.