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Financial Planning
Jun 2024

HSAs: A Triple Threat

By Allison Barrientos, CFP®, CPA

Roth IRAs are often touted as one of the best ways to build tax-free wealth, but did you know that Health Savings Accounts (HSAs) offer a triple tax benefit? Here is what you need to know about HSAs and why this savings tool should be on your radar.

What is an HSA?

An HSA is a tax-favored account that lets you pay for qualified medical expenses tax-free. The list of qualified medical expenses is expansive and includes:

  • Copays & Deductibles
  • Dental care & eye exams
  • Lab fees & X-Rays
  • Prescription or reading glasses
  • Sunscreen, allergy and cold medicines
  • Wheelchairs and walkers
  • In-home nursing care or retirement community fees
  • (See IRS Publication 502 for a full list of HSA eligible expenses.)


The HSA triple tax benefit

  • Tax-deductible contributions
  • Tax-free growth
  • Tax-free withdrawals for qualified medical expenses


Who is eligible to contribute?

For 2024, you are eligible to contribute to a HSA if you are enrolled in a health care plan with a deductible of at least $1,600 for an individual, or $3,200 for a family. The plan’s total yearly out-of-pocket expenses also cannot be more than $8,050 for an individual or $16,100 for a family.

What is the maximum contribution?

The maximum contribution limits to an HSA in 2024 are $4,150 for an individual, and $8,300 for a family with an additional $1,000 allowed for catch up contributions for individuals age 55 and older. Please note that if you are enrolled in Medicare, you are not eligible to contribute.

Do I have to use the funds every year?

No, an HSA is not a use-it-or-lose-it account. Once the money is contributed, it remains there growing tax-free until you withdraw it to pay for qualified medical expenses. Once you reach age 65, money can be withdrawn for any reason without penalty, though withdrawals for non-qualified medical expenses will be taxed at ordinary income tax rates, similar to IRAs. Prior to age 65, withdrawals for non-qualified medical expenses are subject to ordinary income tax plus a 20% tax penalty.

Special tips

  • Maximize the tax-advantaged growth: If your budget allows, consider paying for current medical expenses out of pocket rather than using the funds recently contributed to your HSA. This will allow the balance to grow tax-deferred and provide you with a larger pool of money to cover future medical expenses.
  • Invest your contributions wisely: Take the time to invest the balance of your HSA to allow the funds to grow and keep pace with inflation as you age.
  • Choose a beneficiary: Don’t forget to designate a beneficiary on the account, just as you would for your IRA or 401(k). A spouse is the best choice because they can opt to treat the inherited HSA balance as their own, while other beneficiaries will be required to take a full distribution of the account and pay ordinary income taxes on the distribution.

In summary, if you are eligible to contribute to an HSA don’t underestimate the advantages of the triple tax benefit.

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