The Most Overlooked Wealth-Building Tool During Open Enrollment
Many companies are in the middle of open enrollment season so it is a great time to revisit the Health Savings Account (HSA)- a savings tool that is often overlooked but offers meaningful long-term benefits.
Disclaimer: This content is for informational purposes only and should not be considered medical or tax advice. Always consult your healthcare provider or qualified professional before making decisions about your health coverage or financial plan.
Understanding the HSA
Think of an HSA as a versatile savings vehicle designed to help with healthcare costs and long-term savings when used strategically.
For 2026, you can contribute up to $4,400 for self-only coverage and $8,750 for family coverage.
If you are age 55 or older, you can make an additional $1,000 catch-up contribution as long as you are not enrolled in Medicare.
If you can afford it, aim to fully fund your HSA each year even if you do not plan to use the funds right away. Treat it as an additional long-term savings resource rather than a short-term spending account.
Three Key Tax Advantages
HSAs are unique because they offer three levels of tax benefits:
Tax-deductible contributions lower your taxable income.
Tax-free growth on your investments means you pay no capital gains tax.
Tax-free withdrawals apply when the funds are used for qualified medical expenses.
That is tax-free going in, growing, and when it comes out. Very few accounts can offer this.
For high-income households, the HSA can be one of the most tax-efficient accounts to fund after maximizing employer retirement plans. It can be particularly beneficial for those in higher tax brackets who can leave the balance invested for years.
The Common Misstep
Many people open an HSA, make contributions, and stop there.
The missed opportunity is not investing the funds.
Once your HSA balance exceeds your plan’s minimum cash threshold (usually around $1,000 to $2,000), you may have the option to invest the remaining balance similarly to a retirement account. Over time, that growth potential can turn today’s small contributions into a strong future healthcare resource.
Reimbursing Yourself Later
One of the most under-discussed features of an HSA is the ability to reimburse yourself years later for qualified medical expenses you paid out of pocket.
If you keep your receipts, you can pay for eligible expenses today with personal funds and allow your HSA to stay invested and grow. Then, at any point in the future, you can withdraw that same amount tax-free as reimbursement.
There is no time limit on when you must take the reimbursement, as long as the expense occurred after your HSA was established and you keep proper documentation.
Keep a digital folder or spreadsheet to track receipts and dates of medical expenses. The IRS may ask for documentation if you reimburse yourself years later. Even small co-pays can add up and become a future tax-free reimbursement.
Medicare Enrollment and Lookback Rule
Once you enroll in Medicare, you are no longer eligible to contribute to an HSA.
This becomes important when planning your transition to retirement.
Medicare Part A coverage is retroactive up to six months, so you must stop HSA contributions at least six months before enrolling in Medicare to avoid excess contribution penalties. You can still use your existing HSA funds tax-free for qualified medical expenses, including Medicare premiums and out-of-pocket costs in retirement.
For those approaching age 65, coordinating the final year of HSA contributions with Medicare enrollment can help avoid penalties and make the most of your remaining eligibility.
When to Consider the HSA
HSAs are available only if you are enrolled in a High Deductible Health Plan (HDHP).
They tend to work best for individuals or families who have low to moderate annual medical expenses and can afford to pay smaller healthcare costs out of pocket, allowing the HSA to grow and be invested for future needs.
If you expect frequent doctor visits or prescription costs, compare your total annual premiums and out-of-pocket limits before selecting a high-deductible plan. The potential tax benefits only work if the HDHP makes sense for your healthcare usage.
Final Thoughts
When used strategically, the HSA can function as an additional tax-advantaged savings account for future healthcare or retirement needs.
After age 65, withdrawals for non-medical expenses are taxed like a traditional IRA, which means your contributions still provide value.
For those with healthy cash flow and a long-term mindset, the HSA is not just about healthcare, it is a tool for building long-term, tax-efficient wealth.
