Maximizing your money: The power of HSA accounts

A health savings account (Member FDIC) can be a powerful tool for financing healthcare expenses while supplementing your other retirement savings vehicles — and it even offers benefits for planning your estate.

ABCs of an HSA

Similar to a traditional IRA or 401(k) plan, a health savings account, or HSA, is a tax-advantaged savings account funded with pretax dollars. Funds can be withdrawn tax-free to pay for a wide range of qualified medical expenses. (Withdrawals for nonqualified expenses are taxable and, if you’re under 65, subject to penalties.)

An HSA must be coupled with a high-deductible health plan (HDHP). For 2025, an HDHP is a plan with a minimum deductible of $1,650 for individuals and $3,300 for family coverage, and maximum out-of-pocket expenses of $8,300 for individuals and $16,600 for family coverage.

The HSA contribution limits for 2025 are $4,300 for self-only coverage and $8,550 for family coverage. Typically, contributions are made by individuals, but some employers can — and do — contribute to employees’ accounts. If this is the case, the employer’s and the employee’s contributions combined cannot exceed the maximum  contribution. For example, if you are under 55 with individual insurance coverage and your employer contributes $1,000 in 2025, you can only contribute $3,300 to ensure that you don’t exceed the maximum. If you’re 55 or older, you can contribute another $1,000 as a catch-up contribution.

Be aware that, to contribute, you must not be enrolled in Medicare or TriCare, covered by any non-HDHP insurance (a spouse’s plan, for example), claimed as a dependent on another individual’s tax return, or enrolled in a health plan that is not an HSA-eligible plan, such as a full-purpose healthcare flexible spending account, or FSA. You also cannot have received VA benefits at any time during the preceding three months; however, if you’re a veteran with a service-connected disability, this exclusion doesn’t apply.

HSA benefits

HSAs can lower healthcare costs in two ways: 1) by reducing your insurance expense (HDHP premiums are typically lower than those of other plans), and 2) by allowing you to pay qualified expenses with pretax dollars.

In addition, any funds remaining in an HSA may be carried over from year to year and invested,* growing on a tax-deferred basis indefinitely. To the extent that HSA funds aren’t used to pay for qualified medical expenses, they behave much like in an IRA or a 401(k) plan.

Estate planning and your HSA

Unlike traditional IRA and 401(k) plan accounts, with an HSA, you do not need to make required minimum distributions once you reach a certain age. Except for funds used to pay qualified medical expenses, the account balance continues to grow on a tax-deferred basis indefinitely, providing additional assets for your heirs. The tax implications of inheriting an HSA differ substantially depending on who receives it, so it’s important to consider your beneficiary designation.

If you name your spouse as beneficiary, the inherited HSA will be treated as his or her own HSA. That means your spouse can allow the account to continue growing and withdraw funds tax-free for his or her own qualified medical expenses.

If you name your child or someone else other than your spouse as beneficiary, the HSA terminates and your beneficiary is taxed on the account’s fair market value. It’s possible to designate your estate as beneficiary, but in most cases that’s not the best choice, because a beneficiary other than your estate can avoid taxes on qualified medical expenses paid with HSA funds within one year after death.

There’s much to unpack regarding HSAs. Contact us for more information regarding using this powerhouse account to your full advantage.