Is a Health Savings Account the Right Choice? Almost Always

A broad range of employers offer Health Savings Accounts (HSAs), but few of them bother to explain why they are such a great perk. I’ve crunched the numbers on a lot of health insurance plan options for my clients, and almost always conclude that the HSA is a great deal. 

To be sure, many people hesitate when they realize that HSA plans—which are tied to high-deductible health insurance plans—mean they may incur a few thousand dollars in out-of-pocket medical expenses each year. Not everyone has that kind of cash lying around. 

But these plans come with excellent benefits compared to traditional health insurance plans. Not only are the monthly premiums notably lower, but the money can grow and grow and never trigger a tax bill when withdrawn—as long as the money is spent for co-pays, prescriptions and other qualified expenses.

And unlike Flexible Spending Accounts (FSAs), HSAs don’t have a “use it or lose it” component. Investing the excess funds can help create a tidy nest egg for your later years. 

Many of my clients use their HSA accounts to pay for Medicare premiums when they reach age 65, making their retirement budget that much easier. (If you spend HSA money on non-medical expenses prior to starting with Medicare, you could be hit with a 20% penalty on that withdrawal. So, it’s good to keep track of what you spent the money on, in case you get audited). Once you are enrolled in Medicare, the rules change: you can spend the HSA funds on any kind of expenses, not just medical expenses. 

How much can you put into such a plan? In 2025, HSA contribution limits are $4,300 for individuals and $8,550 for families. With that money, some people look to keep a certain level of funds out of investments, usually covering the out-of-pocket medical expenses for the next 12-18 months. The remainder can be invested in low-cost stock or bond funds. (Some plans only let you invest after you have $2,000 in the account).

Lastly, it’s wise to stop funding an HSA at least six months before applying for Medicare. Funding an HSA while on Medicare can lead to penalties.