Mo Money's Building Wealth Blog

We’ve all heard about the rising costs of healthcare and the fact that those costs are outpacing the rate of inflation.  It’s a fact that nearly everyone will need healthcare in their lifetime, and more often than not those needs will increase as we age into our retirement years. 

Is there anything that the average individual can do to prepare for those healthcare costs?  Yes, there is and it’s in the form of an instrument called a Health Savings Account (HSA).  If you understand IRAs at all, a HSA is structured somewhat like a specialized Roth IRA that is intended to strictly be used to pay for future healthcare costs.

If you aren’t already contributing to a Health Savings Account (HSA) here is why you should consider doing so:

Health Savings Accounts offer a Triple Tax Advantage –

• Contributions are tax deductible even if you just take the standard deduction.
• Earnings grow tax free.
• Withdrawals for qualifying medical expenses are tax free.

Additional benefits of a Health Savings Account –

• Your funds never expire, even if you change jobs.
• You can use your HSA to pay for qualified medical expenses for yourself, your spouse, or your dependents.
• Funds within the HSA can be invested in stocks, bonds, mutual funds, etc.
• If you contribute through payroll deductions, then that money is free from Social Security and Medicare taxes.
• If your employer contributes to your HSA those contributions are excluded from gross income.

Of course, there are a few drawbacks associated with a HSA –

• In order to qualify for an HSA the healthcare plan needs to be considered a High Deductible Healthcare Plan (HDHP).  In 2025 the guidelines are $1,650 for Individuals and $3,300 for families.
• If you take a withdrawal for non-medical expenses, you will need to pay income taxes on that amount.  If it’s before age 65 you’ll also pay a 20% penalty.
• There are contribution limits.  In 2025 they are $4,300 for individuals and $8,550 for families.  Those 55 and over can contribute an additional $1,000.
• If you are enrolled in Medicare, then you can’t contribute to a HSA.

What if your employer doesn’t offer an HSA?

• If you don’t have an employer sponsored health plan, then in order to be able to contribute to a HSA your health plan needs to be considered a High Deductible Health Plan (HDHP).  In 2025 the guidelines are $1,650 for Individuals and $3,300 for families.
• You can open an HSA through a bank, credit union, or brokerage firm.

In summary, a Health Savings Account (HSA) is an often-overlooked vehicle for healthcare and retirement savings.  It’s something that you should consider based on your own personal needs, financial means, and tax situation.