Health savings accounts deliver a unique triple tax advantage by shielding contributions, investment growth, and medical withdrawals from federal income taxes. Workplace contributions can also bypass Social Security and Medicare taxes, and unused balances roll over indefinitely regardless of employment changes. With an average 65-year-old retiree expected to incur substantial medical expenses, these accounts offer significant long-term financial relief. Yet data reveals that very few account holders currently take advantage of the vehicle's underlying investment capabilities.
Key points
Health savings accounts offer superior triple tax advantages because contributions, marke…: Health savings accounts offer superior triple tax advantages because contributions, market growth, and qualified withdrawals avoid federal taxation.
Account holders can let balances compound for decades because unspent funds roll over ind…: Account holders can let balances compound for decades because unspent funds roll over indefinitely without reimbursement deadlines.
Employees should prioritize their immediate healthcare and coverage needs before selectin…: Employees should prioritize their immediate healthcare and coverage needs before selecting a plan based purely on investment perks.
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With open enrollment season getting underway, health savings accounts are worth considering for more than just paying medical bills.
That’s because you can invest the money in an HSA and let it grow for decades, with tax advantages that can make the account an especially powerful way to save for retirement.
HSAs are "sneaky-good and very underrated" investment tools, says John Bell, a certified financial planner and founder of Free State Financial Planning. For those who are eligible, he generally puts maxing out an employer-sponsored HSA near the top of his saving priorities, just behind getting the full employer match in a 401(k), and ahead of funding a Roth IRA or taxable brokerage account.
That said, you shouldn't choose a health plan just to get access to an HSA's investment potential. Whether an HSA-eligible plan makes sense depends first on your healthcare needs and the costs and coverage of the plans available to you, CFPs tell CNBC Make It.
Why financial planners love HSAs
Like the more common flexible spending account, or FSA, an HSA lets you set aside tax-advantaged…
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