Why I’m glad I Don’t Have a Health Savings Account (Plus Everything You Wanted to Know and More About HSAs)

Health Savings Accounts (HSAs) are tax-advantaged accounts that help you save, invest, and pay for medical expenses. What sets HSAs apart is their "triple tax advantage.” HSAs can also be used for retirement. I will explain below!

The HSA Triple Tax Advantage:

1.     Tax-Deductible Contributions

Money you contribute to an HSA lowers your taxable income for the year so you pay less in income taxes when you contribute to an HSA.

Contributions can be made through your employer pre-tax, or you can deduct them on your tax return if you contribute independently. There is a benefit to making contributions pre-tax through payroll deductions. When you contribute to your HSA through payroll deductions, the money is taken before federal income tax, FICA (social security and Medicare), and state taxes are applied. If you contribute post-tax on your own (and deduct it on your tax return), you only avoid federal and state income tax, not FICA. This means you miss out on 7.65% in additional savings if you go this route.

About 75% of employers match a portion of HSA contributions for employees, but usually only if you contribute through payroll deductions. Employer contributions count toward the IRS HSA contribution limits for the year so factor this in when considering your own contributions!

2. Tax-Free Growth

Any interest, dividends, or investment gains grow tax-free inside the account. Your money grows faster because it’s not taxed each year.

• You can invest your HSA funds in mutual funds, ETFs, etc. once your balance reaches a certain threshold (typically around $1,000 or $2,000 but the amount varies by plan).

• Unlike a taxable brokerage account, you don’t owe capital gains tax on the growth.

3. Tax-Free Withdrawals (for Qualified Medical Expenses)

When you take money out to pay for qualified medical expenses (as defined by the IRS), you don’t pay any taxes — not even on the gains. You can use the money completely tax-free if it’s spent on health-related expenses.

• This includes doctor visits, prescriptions, dental care, vision, mental health, and more.

• You can reimburse yourself for past expenses at any time, as long as they occurred after you opened the HSA and you saved the receipts.

• The “any time” part of this is important! As long as you keep the receipts, you can reimburse yourself decades later for expenses you pay today. Why is this useful? It means that you can invest in your HSA, let the money compound, and reimburse yourself after the money has grown.

Bonus: At Age 65…

After age 65, you can withdraw HSA funds for any reason without a penalty. You’ll just pay ordinary income tax on non-medical withdrawals — similar to a traditional IRA.

This means that if you don’t use it all for healthcare, it becomes an additional retirement account.

Why It Matters

The triple tax advantage makes HSAs arguably the most tax-efficient account available, even better than a 401(k) or Roth IRA if used strategically for healthcare spending or invested for retirement.

How much can you contribute? In 2025, the HSA Contribution Limits (including employer + employee) are as follows:

• Individual coverage: $4,150

• Family coverage: $8,300

• Catch-up contribution (age 55+): Additional $1,000

I’m still glad I don’t have one…  

You’re probably asking yourself “GIRL WHY ARE YOU SO HAPPY YOU DON’T HAVE AN HSA THEN??? THEY SOUND LIKE A GREAT ACCOUNT!!”

Good question! In order to have an HSA, you must have a high deductible health plan (HDHP). I don’t have one of those.

My husband and I are covered by his employer’s health insurance. His employer pays 100% of our monthly premiums. Our family deductible for the year is $200 and our max out of pocket is $2,000. Our copays for doctor’s visits are almost always $20 per visit.

This plan isn’t a HDHP, so we’re ineligible for an HSA — and honestly, I’m glad. We rarely worry about medical bills, and our emergency fund doesn't have to stretch to cover a $3,000 to $7,000 deductible.

I want to take a moment to point out how we have such great health insurance. My husband is in a union. Unions are the key to a strong middle class. They bargain for better wages and benefits than an employer would otherwise provide.

Back to HSAs—If you have a HDHP, open an HSA

All that being said, if you have a high deductible plan, you need an HSA for all the reasons above. They are one of the best accounts to cover medical expenses and to fund retirement. Most people in the personal finance world view them as retirement accounts and pay out of pocket for medical costs with the plan to reimburse themselves down the line when their HSA investments have grown. This is what I would do if I had an HSA!

If you invest the individual coverage maximum of $4,150 for 20 years in a total stock market index fund, you will have over $182,000 in your HSA (assuming 7% returns). This $345.83 per month. More doable than people think!

After 40 years, the account would have over $800,000! And this is assuming the limits don’t increase and you only ever invest $345.83 per month.  

Hopefully, I’ve sold you on how sweet HSAs are if you are eligible. Now let’s talk about how I went to great lengths to open an HSA and totally effed it up because I wasn’t actually eligible for an HSA.

Bonus: How I Accidentally Broke the HSA Rules

When I worked at a large law firm, I had access to a HDHP option for health insurance through the firm. At the time, I was already on my husband’s plan because there was no additional cost to add me. I enrolled in the HDHP through my employer just to contribute to an HSA, even though I was already on my husband’s plan. The cost for my share of the HDHP premiums was small because the firm paid a portion. Because of this, it worked out financially for me to pay for the HDHP even though I didn’t need the coverage so I could contribute to an HSA.

The problem? His plan wasn’t an HDHP, so I was not HSA-eligible, even though I technically had a HDHP. If you’re covered by any non-HDHP, even as secondary coverage, you are not eligible to contribute to an HSA — even if you’re also on a HDHP.

I thought that because I was signed up for a HDHP I was eligible for an HSA. I was wrong! If this situation applies to you, don’t make the same mistake I did! I had to withdraw my money and close my HSA. Thankfully, I caught it early and it was an easy fix.

A Few Extra Fun Facts About HSAs—because if you read this far, you’re a little freak who might enjoy these (it’s ok, because same)

• You can use an HSA to pay COBRA premiums. If you lose your job and go on COBRA coverage, HSA funds can be used to pay those premiums.

• You can use HSA funds for your spouse and dependents even if they’re not on your health plan. As long as they’re claimed as dependents on your tax return, you can use your HSA to cover their medical expenses too.

• You can use it to pay for Medicare premiums after age 65. You can use HSA money tax-free to pay for Medicare Part B, Part D, and Medicare Advantage (Part C) premiums. Once enrolled in Medicare, you can't contribute to an HSA.

• You can use HSA funds for travel to medical care. You can pay for mileage, lodging (within limits), and transportation costs if you're traveling for medical treatment.

• Your HSA can be inherited (sort of). If your spouse is your HSA beneficiary, it becomes their HSA (tax-free) when you die. If it's left to anyone else, the entire account becomes taxable income to them in the year they inherit it.

•  You can still use an HSA after you stop contributing. If you change to a non-HDHP plan, you can no longer contribute, but you can keep spending your existing HSA balance tax-free for qualified medical expenses for life.

I hope this was helpful! Let me know at the email below if there are any other personal finance deep dives that you are interested in.