Unlocking the Triple Tax Advantage

Paul FennerRetirement Planning

Hsa - healthcare savings account HSA - One of the Best Retirement Savings Vehicles You May Not Know About | Tamma Capital

One of the best retirement savings vehicles that many people may not realize is a Healthcare Savings Account (HSA).  An HSA is a tax-advantaged account created for individuals covered under high-deductible health plans (HDHPs) to save for medical expenses that HDHPs do not cover.

Rather than using these accounts for current medical costs, you should consider utilizing the multiple tax advantages associated with these accounts to help optimize your retirement plan. 


Similar to a 401(k) plan, contributions can be made into the account by you or your employer but are limited to a maximum amount each year.  An HSA is also portable; you still retain your HSA if you change jobs.

For 2023, the max contribution is $3,850 for an individual and $7,750 for a family.  If you are over 55, you can contribute an additional $1,000.

Contributions to an HSA do not have to be used or withdrawn during the tax year.  Any unused contributions can be rolled over to the following year.  Also, an HSA plan can be transferred to a surviving spouse tax-free upon the account holder’s death.

Qualifying for an HSA

The HSA is usually paired with a qualified HDHP and offered by a health insurance provider.  An HSA can also be opened at several financial institutions.  To qualify for an HSA, the taxpayer must be eligible per the Internal Revenue Service (IRS) standards.  An eligible individual has a qualified HDHP, no other health coverage, is not enrolled in Medicare, and is not dependent on someone else’s tax return.

Triple Tax Advantage

HSAs are often referred to as having a triple tax advantage.  Here is the tax advantage breakdown;

  1. When you contribute to your HSA account, your contribution is tax-deductible.  This is similar to a Traditional 401(k) contribution. 
  2. As your account grows, there is still no tax to pay.  Again, this is similar to a Traditional or Roth retirement account.
  3. When you utilize your account to pay for qualified medical expenses, your withdrawals are tax-free.

Withdrawals Permitted Under an HSA

HSA withdrawals used to pay for qualified medical expenses will not be taxed.

  • Qualified medical expenses include deductibles, dental services, vision care, prescription drugs, co-pays, psychiatric treatments, and other qualified medical expenses not covered by a health insurance plan.
  • Insurance premiums usually don’t count towards qualified medical expenses unless the premiums are for Medicare or other healthcare coverage.  However, you can utilize an HSA for healthcare insurance while unemployed and receiving unemployment compensation and long-term care insurance.

The Disadvantages of Health Savings Accounts

While I believe that the advantages of having an HSA far outweigh the disadvantages, there are a few things that you should know when it comes to an HSA;

  • The High-Deductible Requirement. A High-Deductible Health Plan, which is required to qualify for an HSA, can put a greater financial burden on an individual or family than other types of insurance.
  • Taxes and penalties. If you withdraw funds for non-qualified expenses before you turn 65, you’ll owe taxes on the money plus a 20% penalty.  After age 65, you’ll owe taxes but not the penalty.  These taxes and penalties are similar to retirement savings accounts such as a Traditional 401(k) or IRA.
  • Recordkeeping. You must keep receipts to prove that your withdrawals were used for qualified health expenses.
  • Fees. Some HSAs charge monthly maintenance or per-transaction fees, which vary by institution.  While typically not very high, the fees do cut into your bottom line.  Sometimes these fees are waived if you maintain a certain minimum balance.

Why it Makes Sense to Utilize an HSA Within Your Retirement Plan

Many people who utilize an HSA spend their accounts rather than letting their assets accumulate and grow.  For some, this is a necessity due to balancing their family cash flow needs.  However, for those of you who can forgo drawing down your account, I strongly suggest you utilize these assets as part of your retirement plan for the following reasons.

  • Triple tax advantage.
  • If you are already maximizing contributions to employer-sponsored retirement plans and IRAs, an HSA offers a better option than any taxable or tax-deferred savings vehicle.
  • A Roth IRA is not an option for individuals above certain income levels.  An HSA can be even more valuable because you can contribute to it regardless of income level and reap the triple tax advantage.
  • For most HSA providers, once your account reaches a certain asset level, you can similarly invest your assets in your employer-sponsored retirement plan and IRAs.

By treating your HSA no different than your employer-sponsored retirement plan and IRAs, you can build a sizable asset that can be utilized throughout retirement.

For questions about wealth planning, portfolio management, or tax-related topics, do not hesitate to contact me to find out what options may be best for your family.