Making the most of your HSA at every life stage

Whether you've just started contributing to your health savings account (HSA) or have had one for years, you should be aware of the potential benefits of saving in your account over the long term.

The potential triple tax advantages and ability to accumulate funds year over year are why it can make sense to make the most of your HSA, no matter where you are in life.

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I’m only in my 20s. Am I too young for an HSA?

Actually, it can be a good idea to take advantage of an HSA when you're only in your 20's. When you’re young, health care expenses are generally lower as you are likely to need less medical care. HSAs are exclusively available to people enrolled in an HSA-eligible health plan. One of the reasons that these plans are popular is because the monthly premiums are typically lower, making them more affordable to someone just starting out. When your health costs are low, you may want to give some thought to setting aside some money in your HSA.

Chart shows contributing just $50 a month can amount to $47,435 in 30 years assuming 6% rate of return, 3% inflation rate, and 15% tax bracket.

Assumes $600 net annual contribution (total contribution minus annual spending) for 30 years at a 6% rate of return. Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than their original cost. While you can use your HSA to pay or be reimbursed for qualified medical expenses, 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% federal tax, unless an exception applies.

By contributing to an HSA at an early age, you have the opportunity to let your money grow tax-free for 30 or even 40 years. While you may have other things going on like paying off student loans or saving for a car, even setting aside $50 to $100 per month can add up over time—that’s just as much as many people spend on coffee. The time value of your money is an advantage you won’t have as you get older, so it’s smart to start saving now, even just a little.

Learning about an HSA and its potential advantages is a great start. Being informed about your options puts you in control and will boost your confidence that you may be able to meet your future expenses.

Remember: If you ever have an emergency and need access to some cash, you can access your HSA funds. Just bear in mind that any withdrawals for non-eligible health care expenditures will be subject to federal income tax and may be subject to a 20% additional federal tax, unless an exception applies.

I’m in my 30s or 40s. Does it make sense for me?

In your 30s or 40s, often there is a tradeoff between spending and saving. In your 30s you may be looking at major life events, such as buying a home or starting a family. If you’re in your 40s you may be looking at starting to pay for a child’s education or a vacation home. In any case, you’ll want to make saving for health care expenses for now or in the future a priority.

If you have a family, you may feel that you are paying a pretty penny to keep everyone healthy. But contributing what you can, when you can, is a smart move, because an HSA offers you a tax-advantaged way to pay for common medical expenses. Let’s assume you’re in a 25% tax bracket. Paying with pre-tax HSA dollars is like getting a 25% discount on things like prescriptions, dental care or minor surgery — potentially helping you stretch your money further.

Any way that you look at it, you’ll need a pot of money for health care in retirement. So if you can, the next time you have to pay a medical bill, consider paying for it out of your monthly budget so you can let your HSA funds have the potential to grow to help support your future needs.

I’m in my 50s. Is it too late to start saving?

As you near retirement, contributing to your HSA can help you save for health care needs during retirement while taking advantage of pre-tax contributions. If you’re age 55 or older, you can also take advantage of the $1,000 annual catch up contribution.

While it may seem challenging to save more, it may be a good idea to consider how you could re-align your finances to allow you to contribute more to an HSA now, while you are still working. Even people who are healthy can become a bigger consumer of health care as they age. For example: A healthy couple may need up to $296,000 for health care expenses after they retire1.

The closer you are to retirement, maxing out your HSA contributions to build a nest egg to use for qualified health care expenses in retirement can also free up your other retirement savings— allowing you to focus on things that are important to you.

Still thinking about it? Learn more about HSAs here.

1 Source: Employee Benefits Research Institute, Issue Brief, no. 549, January 20, 2022. A 65-year-old couple, both with median drug expenses needs $296,000 to have a 90% chance of having enough money to cover health care expenses (excluding long-term care) in retirement. Savings needed for Medigap Premiums, Medicare Part B Premiums, Medicare Part D Premiums and Out-of-Pocket Drug Expenses for Retirement at age 65 in 2019.