How Do HSA Accounts Work?

By Brett Gottlieb

Concern over rising healthcare costs is not new, but after the year we’ve had, it’s top of mind for many of us. Nearly half of Americans surveyed are worried about covering surprise medical bills,[1] and even if you have comprehensive health insurance, just one unexpected medical emergency could deplete your emergency fund.

Thankfully, there are ways to mitigate excessive healthcare costs, like using a tax-advantaged health savings account, or HSA. At Comprehensive Advisor, we want you to understand the benefits and disadvantages of opening an HSA so you can make the right choice about whether it’s right for you.

HSA Benefits

One of the strongest arguments for opening up an HSA is it allows you to lower your federal income taxes by making tax-free deposits into your account. Because tax hasn’t been taken out, you end up with more to contribute. Many people have their HSA money withheld directly from their paycheck so that they never even see it or have to pay taxes on it. However, you don’t have to have it automatically withheld—you can just take a deduction when you file your taxes for the same result. Either way (saving now or saving later) you still save on taxes by contributing to an HSA.

Depending on the account, some HSAs also invest the money you contribute in mutual funds,  ETFs, or other stocks. The earnings that you make from the HSA are also tax-free as long as you withdraw the funds to pay for medical expenses.[2]

A Retirement Planning Strategy

While many people use their HSA funds to pay for current out-of-pocket medical expenses, you can also maximize your contributions, letting them grow for use in retirement when you’ll likely need them most. HSAs are a great complement to your other retirement savings accounts, allowing your IRAs and 401(k)s to cover regular living expenses. In this way, your HSA acts as a contingency fund earmarked just for health costs. Why wouldn’t you just stick with traditional retirement accounts? Because an HSA receives better tax treatment than any IRA or 401(k), it can be a powerful way to help maximize your nest egg.

What Do I Need to Get Started With an HSA?

To qualify for an HSA, you must meet the following requirements:[3]

As of 2021, an individual who has an HSA can contribute up to $3,600 per year and $7,200 for family coverage. Individuals who are over the age of 55 can make additional catch-up contributions in the amount of $1,000 per year to their HSAs.[4]

HSA Withdrawals

You can use the money you deposit in your HSA to pay for medical expenses before you meet your deductible on your HDHP. Such medical expenses include the usual healthcare costs, such as deductibles, copayments, and vision and dental expenses. But you can also use it to pay for non-traditional medical costs, such as acupuncture or chiropractic visits. Additionally, you can use the account to cover medical costs for your immediate family members or spouse even if they are not under your HDHP.[5]

One of the most beneficial attributes of HSAs is that the funds roll over from year to year, which means that these tax-free funds can grow with interest for many years. Once you reach the age of 65, you can withdraw the funds without a penalty and use them on non-medical expenses; however, you will pay income tax on the funds if you use them in this way. If you are enrolled in Medicare, you can use HSA funds to pay for Medicare premiums for Part B, Part D, and Part C.[6]

Potential Disadvantages of HSAs

There are many advantages that HSAs offer, but they do not make sense for every family and every situation.

It goes without saying that illness can be unpredictable and, therefore, it can be hard to budget for healthcare expenses. Also, it is worth noting that you cannot use HSAs to cover Medigap premiums without paying taxes.[7]

The Bottom Line

When setting up a health savings account and deciding the best way to use it, it is important to work with a knowledgeable financial professional who can walk you through the fine print. If you want to know more about health savings accounts and how to make the best choices for your money and your health, we’d love to help! Email us at or call (760) 813-2125 to get started.

About Our Advisors

Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees in Business Administration and Economics. Brett is Life Insurance licensed in several states. He is passionate about guiding his clients on retirement income planning, helping each client pursue their specific retirement goals and defending the assets his clients have worked so hard to achieve. Brett is a California native and currently resides in San Elijo Hills with his beautiful wife and three children.

With a combined experience of over three decades in the financial services industry, our advisors hail from some of the largest independent broker/dealers and banking institutions in the country. They have dedicated their professional careers to creating personalized financial solutions for individuals and families who seek successful retirement planning and currently offer investment advisory services through AE Wealth Management, LLC. Our advisors take a common-sense approach to the planning process and work with clients to create a retirement road map to help ensure their assets are protected and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County and beyond. Learn more by connecting with Brett on LinkedIn or email them at

Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Comprehensive Advisor are not affiliated companies. C.A. Financial & Insurance Services, CA Ins. Lic. #6000262. This material is intended to provide general information and is believed to be reliable, but accuracy and completeness cannot be guaranteed. Neither the firm nor its representatives may give tax or legal advice. Investing involves risk, including the potential loss of principal. Any references to protection benefits, safety, security, lifetime income, etc. generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Our firm is not affiliated with the U.S. government or any governmental agency. 1143037 – 12/21

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