What Is an HSA?

How Does an HSA Work?

An HSA allows you to contribute pre-tax dollars, which can be used to pay for eligible medical expenses such as deductibles, copayments, prescriptions, vision care, dental care, and more. The money in your HSA grows tax-free, and withdrawals are also tax-free when used for qualified medical expenses.

Key Benefits of an HSA

1 . Triple Tax Advantage:

• Contributions are tax-deductible: The money you put into your HSA reduces your taxable income.
• Tax-free growth: Any interest or investment earnings grow tax-free.
• Tax-free withdrawals: When you use HSA funds for qualified medical expenses, you pay no taxes on the withdrawals.

2 . Flexible Investment Options:

Many HSA providers allow you to invest part of your balance in mutual funds or other investment options, once you reach a minimum cash threshold. This can help you grow your HSA into a powerful long-term savings vehicle for future medical costs — while still keeping enough cash in the account to cover near-term expenses.

3 . Funds Never Expire:

Unlike a Flexible Spending Account (FSA), HSA balances roll over from year to year. There’s no “use it or lose it” rule, so unused funds can continue to grow and be used in the future.

4 . Portability:

Your HSA is yours to keep. If you change jobs, switch insurance plans, or retire, your HSA stays with you.

5 . Retirement Planning:

Medical expenses are a normal and often significant part of retirement. An HSA can help you plan ahead by setting aside tax-free money today for those future costs. After age 65, you can use your HSA funds for any purpose without a penalty — though if the funds are not used for qualified medical expenses, you’ll pay ordinary income tax. Using an HSA to cover healthcare costs in retirement helps protect your other retirement savings and provides added flexibility.

Who Can Contribute to an HSA?

To be eligible to contribute to an HSA, you must meet these requirements:

• You must be covered by a High Deductible Health Plan (HDHP).
• You cannot have other non-HDHP health coverage (some exceptions apply, such as dental, vision, disability, or long-term care insurance).
• You cannot be enrolled in Medicare.
• You cannot be claimed as a dependent on someone else’s tax return.

4. Invest in experiences and your future.

Your 20s are a great time to travel, explore, and take risks. Just don’t let short-term enjoyment come at the cost of long-term security. Finding a balance between living fully now and planning responsibly for the future is one of the most valuable skills you can learn. A weekend getaway is great — so is contributing to a future down payment, or building an emergency fund. You can do both with intention.

Contribution Limits for 2025:

• Individuals: $4,300
• Families: $8,550
• Catch-up contributions: If you’re age 55 or older, you can contribute an extra $1,000 per year.

What Can HSA Funds Be Used For?

HSA funds can be used for a wide range of qualified medical expenses, including but not limited to:

• Doctor visits and hospital services
• Prescription medications
• Dental and vision care
• Mental health services
• Long-term care services
• Certain over-the-counter medications

It’s important to keep receipts for all qualified expenses in case of an IRS audit.

Is an HSA Right for You?

An HSA can be a powerful way to save on taxes while setting aside money for current and future healthcare costs. However, it works best for individuals and families who are enrolled in a high-deductible health plan and who can afford to contribute regularly.

If you’d like to learn more about how an HSA could fit into your financial plan, our team is here to help. Contact us today to discuss whether an HSA makes sense for you and your goals.