If you don’t yet have a Health Savings Account (HSA), you’re missing out on one of the most tax-advantaged and versatile accounts available. For those with a high-deductible health plan (HDHP), an HSA can be a powerful tool for managing health expenses and building wealth over time. Here, we’ll explore what makes an HSA unique, break down its triple-tax advantage, and share some powerful money hacks to maximize its potential.

What Is an HSA?

An HSA is a tax-advantaged savings account designed to help you pay for qualified healthcare expenses. To be eligible, you need to be enrolled in a high-deductible health plan (HDHP). If you’re not sure about your plan, check with your HR department or look for plans labeled “HDHP” in the marketplace.

The Triple Tax Advantage of an HSA

  1. Tax-Free Contributions: The money you put into an HSA is contributed pre-tax, meaning it lowers your taxable income. For instance, if you earn $100,000 and contribute $5,000 to your HSA, you’ll only be taxed on $95,000.
  2. Tax-Free Withdrawals: Funds withdrawn from your HSA for qualified medical expenses are not taxed. This benefit allows you to cover various medical costs without worrying about taxes eating into your savings.
  3. Tax-Free Growth: Any investment growth within your HSA is tax-free as long as the funds are eventually used for qualified medical expenses. Many HSA providers offer investment options, allowing your funds to grow over time.

HSA Hacks to Maximize Your Savings

Hack 1: Invest Your HSA Funds

Rather than letting your HSA balance sit idle, invest it. Most HSA providers offer investment options that allow you to grow your funds over time. For example, a family that maxes out their HSA contributions annually and invests it with an average return of 7% could see their balance grow to over $900,000 in 30 years—compared to about $370,000 if the funds sit uninvested.

Hack 2: Pay Out-of-Pocket for Medical Expenses (When Possible)

To maximize your HSA’s growth potential, consider covering medical expenses out-of-pocket rather than dipping into your HSA. By keeping your HSA funds invested, you can take advantage of compound growth. Down the line, you’ll have a significantly larger balance to use in retirement.

Hack 3: Reimburse Yourself Later

You can reimburse yourself for any medical expense incurred while you have an HSA—even years down the line. So, if you’ve been covering medical expenses out-of-pocket, you can later withdraw that amount from your HSA tax-free. Keep detailed records of all qualified expenses to make this process smooth and worry-free.

Hack 4: Use Your HSA Like a Traditional IRA After Age 65

Once you turn 65, you can use your HSA funds for non-medical expenses without penalty. While withdrawals for non-qualified expenses are taxed as income, they won’t incur the 20% penalty that applies before age 65. This makes your HSA a flexible retirement account with added advantages for healthcare spending.

HSA-Eligible Expenses

HSAs cover a wide range of medical expenses, including:

  1. Routine Medical Expenses: Doctor’s office copays, flu shots, hearing aids, and prescription medications.
  2. COVID PPE Supplies: Masks, hand sanitizers, and other PPE.
  3. Over-the-Counter Medications and Menstrual Products: Items like allergy meds, aspirin, and tampons.
  4. Family Planning Products: Birth control, pregnancy tests, and prenatal vitamins.
  5. Emergency Medical Expenses: Ambulance rides, ER visits, and urgent care.
  6. Mental Health Care: Acupuncture, therapy, and psychiatric services.
  7. Dental Care: Orthodontics, dental implants, and root canals.
  8. Vision Care: Eye exams, contact lenses, LASIK surgery, and even guide dog expenses.

For more details on eligible items, you can explore the IRS guidelines or check your HSA provider’s resources.

Important Considerations for HSAs and Medicare

If you’re approaching 65 and plan to enroll in Medicare, be aware that HSA contributions must stop once you begin Medicare coverage. However, you can continue using your HSA funds for most Medicare-related expenses, such as premiums, deductibles, and co-pays (though not Medicare Supplement premiums). Planning ahead for this transition can help you avoid surprise tax issues.

Get Started with a Free HSA Account

If you’re ready to start leveraging an HSA for both medical and financial benefits, consider signing up with a provider like [Lively](https://livelyme.com/features), which offers free accounts with investment options.

By using these hacks and understanding the full scope of HSA benefits, you can transform this account into a powerful tool for both healthcare and retirement planning.