Maximize Your Finances: The Power of Triple Tax-Free HSAs

You likely came across this blog post during open enrollment or after landing a new job. If the latter is true, congratulations! Before you blindly enroll or keep things the same, have another look at your available health plans. Don’t simply gloss over a health savings account (HSA) available through a high-deductible health plan (HDHP). An HSA can be such a powerful tool for your financial toolbox that it’s absolutely worth giving it a second look. 

What makes them so powerful? HSAs are considered to be triple tax free and allow you to invest the funds for further growth – more on that later. You can even use the funds toward long-term care expenses in retirement. 

So What Exactly is an HSA?

A health savings account (HSA) is a tax-advantaged savings account available for anyone enrolled in a high-deductible health plan (HDHP). HSAs are similar to flexible spending accounts (FSAs) in the fact that contributions are made pre-tax (or are tax-deductible) and that the money used for qualified medical expenses is tax free. But that’s where the similarity really ends.

Unlike FSAs, if you don’t use it, you don’t lose it. Any unused funds in your HSA roll over each year and can also be invested. This is where the triple tax-free benefit really comes into play. (More on that in just a second.)

HSA Contribution Limits for 2025

• $4,300 self-only coverage

• $8,550 family coverage

• $1,000 catch-up contribution if age 55 or older

HSA Pros

• No “Use-It-Or-Lose-It” rule like FSAs. All unused HSA funds roll over each year.

• You can invest HSA funds to grow into a larger future balance.

• Triple tax-free:

• Contributions are tax-deductible (or pre-tax if made through payroll)

• Growth is tax-free (no tax on interest, dividends, or capital gains)

• Withdrawals for qualified medical expenses are tax-free

• At age 65 and older, you can use the funds for nonmedical purposes. However, you will be taxed on any amount used for nonmedical purposes.

• Your HSA stays with you even if you change jobs or retire.

• Employers can choose to contribute to employees’ HSAs. 

HSA Cons

• Available only with HDHPs

• HDHPs can result in higher out-of-pocket costs

• Withdrawals for non-qualified medical expenses before age 65 are charged a 20% penalty on top of regular income tax.

Triple Tax-Free Example:

• Say you’re 35 years old and married.

• You just now decide to enroll in an HSA for the 2025 plan year.

• $712.50 monthly contribution ($8,550 per year).

• *Note: assumes you don’t increase this amount with inflation.

• Contribute for 30 years until you’re 65 and earn a moderate 7% annual return.
  

  Total lifetime contributions: $256,500 tax-free

  Total Gain: $617,800 tax-free

  Total Ending Balance: $874,300 tax-free

That’s $874,300 that you can use completely tax free for qualified medical expenses. My favorite use for HSA funds is long-term care expenses during retirement.

Conclusion:

HSAs offer significant tax advantages and flexibility, making them yet another powerful tool to keep in your financial toolbox. It’s important to reiterate that HSAs are available only to those enrolled in a high-deductible health plan. Not every employer offers an HDHP, and not all HDHPs are created equal. It’s important to crunch the numbers with your financial professional to see whether it makes sense to enroll in an HDHP and tax advantage of an HSA.

Does an HSA make sense for you and your family? Schedule a complimentary intro call to learn more.