How to Use an HSA to Build Wealth

Health savings accounts (HSAs) are a dual-purpose tool for managing healthcare expenses and building wealth. They provide three key tax benefits: tax-deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses. Maximizing annual contributions can lead to substantial long-term savings. For help creating a long-term financial plan or determining how you can build wealth, consider working with a financial advisor.

How an HSA Works

Health savings accounts (HSAs) are tax-advantaged savings accounts designed specifically for individuals with high-deductible health plans (HDHPs). These accounts help cover out-of-pocket medical expenses while also offering significant tax benefits.

HSAs are designed to cover a wide range of medical expenses, including doctor visits, prescription medications, dental care and even some over-the-counter drugs. You must use the funds for IRS-qualified medical expenses to avoid penalties and taxes. Any withdrawals for non-qualified expenses before age 65 are subject to income taxes and a 20% penalty.

One of the flexible features of an HSA is its rollover capability. Unlike flexible spending accounts (FSAs), HSAs do not have a “use-it-or-lose-it” rule. Any unused funds at the end of the year roll over to the next year, allowing your savings to accumulate. Additionally, HSAs are portable, meaning you own the account, and it stays with you even if you change jobs or health plans.

Benefits of Using an HSA

Health savings accounts offer a unique blend of tax advantages and savings opportunities that can significantly benefit your financial health. Designed for individuals with high-deductible health plans (HDHPs), HSAs are a versatile tool for managing medical expenses and planning for the future. Here are six key benefits of using an HSA:

Triple tax advantage: HSAs provide a triple tax advantage: contributions are tax-deductible, earnings grow tax-deferred, and withdrawals for qualified medical expenses are also tax-free. This combination can lead to substantial tax savings over time, enhancing your overall financial strategy.
Long-term savings: Unlike flexible spending accounts (FSAs), HSAs do not have a “use-it-or-lose-it” rule. Any unused funds roll over year after year, allowing you to build a significant savings reserve for future medical expenses or even retirement.
Investment opportunities: Many HSA providers offer investment options once your account balance reaches a certain threshold. You can invest in mutual funds, stocks or bonds, similar to a 401(k) or IRA, enabling your contributions to grow and increase your wealth over time.
Flexibility: HSAs are highly flexible and portable. You own the account, and it stays with you even if you change jobs or health plans. This portability ensures that you can continue to benefit from your HSA regardless of your employment situation.
Tax-free withdrawals for qualifying expenses: This means you can pay for a wide range of healthcare costs, including doctor visits, prescription medications and dental care, without incurring additional tax liabilities.
Retirement benefits: After age 65, you can use HSA funds for non-medical expenses without a penalty, though they will be subject to ordinary income tax. This feature makes HSAs a valuable supplementary retirement savings tool, offering flexibility and additional financial security in your later years.

Strategies to Use an HSA to Build Wealth

A couple feeling confident with their health coverage after funding an HSA.

A Health Savings Account (HSA) is often seen primarily as a tool to save money on healthcare expenses, but its potential as a wealth-building vehicle is frequently overlooked. With tax advantages, investment opportunities, and flexibility in spending, HSAs can play a pivotal role in long-term financial planning. Here’s how you can leverage an HSA to build wealth. Here are five ways you might be able to build wealth and benefit:

1. Max Out Contributions

The first step to building wealth with an HSA is to contribute the maximum amount allowed by the IRS each year. For 2025, the limits are $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution for those aged 55 or older. Maximizing contributions ensures you take full advantage of the tax benefits.

2. Treat Your HSA as an Investment Account

Many people use their HSA as a “use-it-or-lose-it” account, spending down the balance annually. Instead, consider investing the funds for long-term growth. Most HSA providers allow you to invest in mutual funds, ETFs, and other securities once your account reaches a minimum balance. Treating your HSA as an investment vehicle rather than a simple savings account can significantly increase its value over time.

3. Pay for Medical Expenses Out-of-Pocket

To maximize the compounding growth of your HSA investments, consider paying for current medical expenses out-of-pocket using other resources. Keep detailed records of these expenses because the IRS allows you to reimburse yourself from your HSA for qualified expenses at any time in the future, as long as they were incurred after the HSA was established.

4. Use the “Shoebox Strategy”

The shoebox strategy involves saving receipts for medical expenses you pay out-of-pocket while allowing your HSA balance to grow tax-free. Later, you can withdraw funds from your HSA tax-free to reimburse yourself for these past expenses, effectively turning it into a tax-free withdrawal mechanism. This is valuable if you are already budgeting these expenses.

5. Let Your HSA Become a Retirement Asset

After age 65, HSAs take on an additional role as a supplemental retirement account. Withdrawals for non-medical expenses are taxed at ordinary income rates, similar to a traditional 401(k) or IRA. However, qualified medical expenses remain tax-free. Using your HSA for healthcare costs in retirement allows you to stretch your retirement savings further.

Depending on the strategy, you can maximize the financial benefits of your HSA and use it to enhance your long-term financial health.

Bottom Line

A couple hugging each other after paying for qualifying medical expenses with an HSA.

Leveraging an HSA to build wealth can help you stretch your retirement savings and pay for qualifying medical expenses. Consulting with a financial advisor can help you optimize your HSA strategy so that it aligns with your broader financial goals and enhances your overall wealth-building efforts.

Tips for Building Wealth

A financial advisor can guide you in building a long-term financial plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
When you’re looking to build wealth it’s important to know what type of investment portfolio and risk profile fits your needs. Consider using an asset allocation calculator to see what might be a fit for your portfolio.