Why a Health Savings Account is a good idea in your 20s and 30s

The beauty of contributing to a Health Savings Account (HSA) in your 20s and 30s is that your health care expenses are likely low right now. That means you probably won’t need to touch most of the money you contribute to your account each month, leaving it to accumulate for when you need to use it—whether that’s next year, five years from now or further down the road.

An HSA is a personal savings account that allows you to set aside money on a federal tax-free basis1 to pay for qualified medical expenses and that gives you the opportunity to invest your balance for potential tax-free2 growth over time. Knowing how to take advantage of this account early in your career can help you jump-start your savings goal, even if you can only contribute a small amount each month.

5 tips to get the most out of your HSA

Icon of a light bulb and tip one

Time is on your side—start saving and investing now

Similar to a 401(k), your HSA gives you the opportunity to invest your balance in mutual funds for federal income tax-free growth potential. The sooner you start, the more time your HSA will have the chance to grow—and the more prepared you’ll feel managing higher health care costs later in life.

Show text version

The potential impact of investing early

Kenzie, age 26, has minimal health care expenses. She contributes $2,300 annually to her HSA and only spends $500, for a net savings of $1,800 per year. Kenzie realizes that the money in her cash account could be working harder for her future and decides to invest it for tax-free growth potential. Assuming a 5% rate of return, Kenzie’s account could potentially grow to $217,440 in 40 years and help her be prepared for health care costs in the future.

Icon of a light bulb and tip two

Set a savings goal for your HSA

If you can, make a savings goal to contribute up to the annual maximum limit. Or, if you can’t afford the full amount, you can start small, perhaps setting aside $25 to $50 per paycheck.

Wondering where your HSA contributions will fit into your monthly budget? You can try trimming non-essential spending, such as foregoing meal delivery fees or app subscriptions, to allow for monthly HSA contributions. Explore other contribution strategies that might work for you.

Show text version
Icon of a light bulb and tip three

Don’t miss out on employer contributions

Some employers may make contributions to your HSA or match your contribution—and if that’s the case, be sure you’re taking advantage of this valuable benefit. Just remember to plan your contributions alongside your employer’s contributions so you don’t exceed the annual maximum limit. Check your plan rules for details.

An icon showing money leaving a circle, plus an icon of money in a hand, over the term HSA contributions.
Icon of a light bulb and tip four

You own your HSA—it’s yours for life

Your HSA is portable, meaning you can take it with you if you leave your current company for any reason and you can access the money in your account whenever you might need it. As long as you are enrolled in an HSA-eligible health plan, you can also continue to contribute to your HSA to build your health savings for the future.

Icon of a light bulb and tip five

Use your HSA like an emergency medical account

Even when you’re young and healthy, it’s a good idea to plan for unexpected medical expenses, such as a sports injury or potential visit to the ER. And if you ever find yourself unemployed, you can use your HSA to pay for COBRA premiums so you don’t lose access to health insurance. Building your HSA balance could help you be better prepared to cover emergency medical expenses and help reduce the stress of facing a large out-of-pocket expense.


Think about your future self—and what you do next

You have the power of time on your side, so seize the moment—consider increasing your HSA contribution to take advantage of your account’s potential tax benefits2 and the opportunity to build your balance over time. You can update your contribution any time on your employer’s benefit site, or you can make a one-time contribution on the member website. Your future self will thank you.

Investing involves risk. There is always the potential of losing money when you invest in securities.
Bank of America, Merrill, their affiliates, and advisors do not provide legal, tax or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions.
1Pre-tax payroll contributions to your HSA may be exempt from federal and most state taxes or you may be able to claim a tax deduction for after-tax contributions you, or someone other than your employer, make to your HSA, as long as you continue to be an eligible individual. Eligibility is defined by IRS Code 223 and is described in your Bank of America Health Savings Account Custodial Agreement and Disclosure Statement, which includes maintaining coverage under a qualifying high-deductible health plan.
2Potential Tax Advantages: You can receive federal income tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax, unless an exception applies. Any interest or earnings on the assets in the account are federal income tax-free. You may be able to claim a tax deduction for contributions you, or someone other than your employer, make to your HSA directly (not through payroll deductions). In addition, HSA contributions may reduce your state income taxes in certain states. Certain limits may apply to employees who are considered highly compensated employees. Bank of America recommends you contact qualified tax or legal counsel before establishing an HSA.