Out-of-pocket medical expenses are hitting families harder this year. Taking advantage of any tax strategies will help to ease some of the cost. One often overlooked—but incredibly powerful—tool is the Health Savings Account (HSA).
If you’re enrolled in a high-deductible health plan (HDHP) you may be eligible to open and fund an HSA. Used wisely, this account offers a rare combination of tax benefits and long-term planning flexibility.
The Triple Tax Advantage
HSAs are unique in that they offer three separate tax advantages:
- Contributions are tax-deductible (or pre-tax via payroll deductions)
- Growth is tax-free when invested
- Withdrawals are tax-free when used for qualified medical expenses
Very few accounts offer this level of tax efficiency, making HSAs an attractive option for savers.
More Than a Healthcare Fund
While many people think of HSAs as just a place to pay for annual medical expenses, there is much more strategic potential. In fact, HSAs can become a valuable part of your retirement plan.
If your cash flow allows, it may make sense to pay current medical expenses out-of-pocket and let your HSA grow, invested for the long term. You can save receipts and reimburse yourself later, there’s no deadline for claiming qualified expenses if you had the HSA established at the time the medical expense was incurred. This allows your HSA to operate like a retirement account with tax-free growth and flexibility down the road.
After age 65, you can even use HSA funds for non-medical expenses without a penalty—though you’ll pay ordinary income tax, just like a traditional IRA. Used for healthcare in retirement (including Medicare premiums or long-term care), withdrawals remain completely tax-free.
Contribution Limits and Eligibility
To contribute to an HSA, you must be enrolled in a qualifying HDHP. For 2025, the minimum deductible is $1,650 for individuals and $3,300 for families. Contribution limits are:
- Individual: $4,300
- Family: $8,550
- Catch-up (age 55+): Additional $1,000
Unlike Flexible Spending Accounts (FSAs), your HSA balance rolls over year to year—and it’s yours to keep, even if you change jobs or retire.
What’s Covered?
Your HSA can be used for many expenses not covered by your health plan, including:
- Doctor visits (specialists, labs, and other medical care)
- Dental care (X-rays, cleanings, fillings, orthodontics)
- Hospital expenses (accidents, surgery, inpatient/outpatient costs)
- Prescriptions and copays
- Over-the-counter medications (pain relief, cold/flu medicine) and menstrual care products
- Physical therapy (when medically necessary)
- Vision care (eye exams, glasses, contacts)
- Travel related to medical care (mileage, parking, public transportation)
- Eligible family planning expenses (birth control, infertility treatments, vasectomy, etc.)
Why Work with a Financial Planner?
Opening an HSA may be simple to establish by yourself, and we encourage you to do that, but using it wisely, and in coordination with your broader financial plan, is where guidance adds real value. At Kowal Financial Advisors, we help clients:
- Determine the right contribution amount each year
- Select investment options within their HSA provider
- Plan for Medicare transition and incorporate HSA assets into retirement income strategies
- Understand the tax and estate planning implications of HSA beneficiary designations
As part of a coordinated financial plan, HSAs offer flexibility, tax advantages, and growth potential. Used properly, they can help reduce healthcare costs now while providing an important source of medical or retirement funding later.
If you’re eligible for an HSA and want to ensure you’re making the most of it, we’d be happy to help you evaluate your options.
