Health savings accounts have become popular workplace perks with significant tax-advantaged investment opportunities — but many Americans have no idea how they work.
About 26 million people had an HSA at the end of 2023, according to Devenir, a research and investment firm based in Minneapolis. Assets in these accounts reached about $137 billion by this June, and are expected to grow to $175 billion by the end of 2026.
“We definitely are seeing growth in the number of people who sign up,” said Todd Katz, executive vice president of group benefits at MetLife. Strong market performance has also spurred growth of the investments in HSA accounts, helping to boost balances.
Still, 50% of U.S. adults don’t understand how HSA’s work, according to a survey by Empower, a financial services company. Only 34% of employees with access to an HSA have enrolled in the benefit, and just 24% who have enrolled have funded their accounts, according to MetLife’s U.S. Employee Benefits Trends Study conducted in September 2024.
That can be an expensive miss: HSA benefits are “unmatched, really, relative to Roth IRAs or 401(k)s,” said Christine Benz, director of personal finance and retirement planning at Morningstar. “You just don’t see tax benefits like that.”
Here’s what to know about HSAs, and how to take advantage:
Tax benefits of health savings accounts
HSAs are tax-advantaged accounts for health expenses. Funds roll over from year to year, and the account comes with you if you change jobs. HSA money can also be invested.
To be eligible to contribute to a health savings account, an individual must be enrolled in a high-deductible health plan, or HDHP. For 2025, the Internal Revenue Service defines that as any plan with an annual deductible of at least $1,650 for an individual or $3,300 for a family. The maximum out-of-pocket expenses for an HDHP are $8,300 for an individual or $16,600 for a family.
A saving, spending and investment account, HSAs offer three ways to save on taxes.
“You’re able to put pre-tax dollars into your health savings account. As long as the money stays within the confines of the HSA is it is not taxed,” said Benz, the author of “How to Retire.” “And then, assuming that you pull the funds out and use them for qualified health care expenses, those funds aren’t taxed either. So you earn a tax break every step of the way.”
In 2025, eligible individuals can contribute to a HSA up to $4,300 or $8,550 for family coverage.
‘You need to run the numbers’
High-deductible health plans may have lower monthly premiums than other plans, but it still could be hard for many people to come up with the cash to meet the deductible on a hefty medical bill.
Experts say making the most of an HSA’s tax benefits generally requires covering current health costs out of pocket, if possible, so the HSA investment funds can grow for future use. That’s not easy to do, either.
Also, if you take money from your HSA for a non-medical expense, you have to pay federal income tax and a 20% tax penalty on the money withdrawn. Accountholders age 65 and older can avoid that penalty, but will still pay income tax.
There’s a lot to think about, so experts say take the time to weigh the pros and cons of the options.
A new report from Voya Financial finds 91% of working Americans pick the same health plan from the year before. But experts say it can pay to crunch the numbers.
“If you’re somebody who has to go to the doctor all the time, you know you’re going to meet your deductible, you probably want to go with a copay plan, but you need to run the numbers,” said Carolyn McClanahan, a physician and CFP based in Jacksonville, Florida. She’s a member of CNBC’s Financial Advisor Council.
Benz agrees, adding that “successfully using the high deductible plan very much rests on taking advantage of that health savings account.”
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