Health Savings Accounts: Your Triple Tax-Advantaged Secret Weapon

One of the scariest things about self-employment is health insurance.

It’s confusing. It’s expensive. And, well, your health is at stake.

Having great health insurance, especially when it is paid for by an employer, is one of the best perks of working for someone else.

But companies are starting to shift the financial responsibility of health care onto employees. This means opting for high-deductible health plans.

By 2018, almost 50% of companies will only offer high-deductible health plans.

If you are young and healthy, you may actually save on health insurance by paying lower premiums. But if you need more than routine care, out-of-pocket expenses can add up.

Although high-deductible health plans have lower premiums, you must pay a significant amount of money out-of-pocket before the insurance company starts paying.

But guess what? There is a triple tax-advantaged secret weapon than can help—health savings accounts!

What is a Health Savings Account (HSA)?

Health savings accounts (HSAs) lighten the financial burden of high-deductible health insurance plans. These accounts allow you to pay for health care expenses and save on future costs.

This year’s IRS definition of a high-deductible insurance plan has the following deductibles:

  • $1,300 for an individual
  • $2,600 for a family

Here are the contribution limits for 2016:

  • $3,350 for an individual
  • $6,750 for a family
  • $1,000 extra if you are older than 55

Health Savings Accounts Offer Triple Tax Advantages

  1. Your contributions are both pre-tax* and tax-deductible.
  2. Your earnings grow tax-free.
  3. Your withdrawals for qualified medical expenses are tax-free. At 65, withdrawals for non-medical expenses are taxed at your current rate, like an IRA.

*Contributions are only pre-tax if they are made by an employer through a payroll deduction.

How to Qualify for a Health Savings Account

  1. You must be enrolled in a high-deductible health plan.
  2. You can’t be enrolled in a Medicare or other health insurance plan.
  3. You can’t be a dependent on someone else’s tax return

Other Health Savings Account Perks

  • Flexibility You can roll over health savings account money every year. Your health savings account isn’t tied to your employer. You can take it with you when you change jobs. Also, you can shop around for the best options.
  • Growth opportunity Many accounts offer investment options like mutual funds or stocks. Can you afford to pay health expenses out-of-pocket? If so, you can use a health savings account to save long-term for health care expenses in retirement.  
  • No income restrictions It doesn’t matter how small or large your income is. Everyone with a high-deductible health plan is eligible.

Downsides of Health Savings Accounts

  • Fees Many health savings accounts charge a monthly maintenance fee or transaction fees. These expenses can add up fast, eating away at your savings and growth. Ask about all fees upfront.
  • Staying organized Do you struggle with keeping track of receipts? You need to prove health savings account withdrawals were only used for qualified health expenses. There is a full list of what is covered here.    
  • The cost of high-deductible health plans High-deductible health plans don’t make sense for everyone. These plans can save money on premiums if you are healthy. But if you need more than routine care you will be responsible for significant out-of-pocket expenses until the deductible is met. Unfortunately, this leads some people to avoid necessary care.

How To Find the Right Health Savings Account For You

Once you have enrolled in a high-deductible health plan, you have several options.

Here is where to begin your health savings account research:

  1. Ask your health insurance provider if they have a preferred provider.
  2. Ask your company’s human resources department for recommendations.
  3. Research options through local banks and credit unions.
  4. Shop online through or

Here are some questions to consider when deciding on an account:

  • How soon will you need the money? Are you planning to spend the money quickly? Or are you more interested in long-term growth? Depending on your answer, you should compare each plan’s interest rates and investment options.
  • What are the fees? Be sure to review all fees associated with the account. These can include setup fees, monthly or annual fees, minimum balances, overdraft, etc.
  • How is the customer service and company’s software? Do you prefer in-person help, talking over the phone, navigating your account online, or checking balances on a mobile app? It’s worth reviewing the company’s options to be sure they are able to meet your needs.

If you are enrolled in a high-deductible health plan, it is worthwhile to pair it with a health savings account. Health savings accounts can help ease the burden of out-of-pocket expenses. These accounts offer triple tax advantages. Plus, they can help save for healthcare expenses for retirement.

Readers: Have you taken advantage of a health savings account? Do you have a favorite provider?

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Discussions — 29 Responses

  • Linda @ Brooklyn Bread September 6, 2016 on 6:04 am

    I’ve asked my employer for a health flex spending account- the kind you are eligible for if your insurance comes from your employer- and they have ignored me. So frustrating!

    • Kate Dore Linda @ Brooklyn Bread September 12, 2016 on 1:53 pm

      Oh no! I’m so sorry your employer hasn’t been helpful. I wouldn’t give up! Maybe they have just been busy?

  • The Green Swan September 6, 2016 on 7:00 am

    I’m a big fan of health savings accounts also and have been maxing my contributions for the last few years. It’s a great investment tool and I’m sure will come in handy when I get older (although I hope to maintain my good health forever!).

    • Kate Dore The Green Swan September 12, 2016 on 1:52 pm

      That’s fantastic! I wish I had access to an HSA sooner. For the past few years I’ve maxed out my Roth IRA. It would have been handy to contribute to another tax-free account.

  • Matt @ Optimize Your Life September 6, 2016 on 7:29 am

    I switched over to an HSA-eligible plan after reading the Mad FIentist’s post on them and have been very happy with it. The extra tax-advantaged investment space is great for preparing for big future expenses. The trade-off of lower premiums for higher deductibles has meant that so far I am spending less money overall on healthcare, but the expenses are a bit lumpier and less predictable. That’s a trade-off that I am fine with.

    • Kate Dore Matt @ Optimize Your Life September 12, 2016 on 1:51 pm

      Same here, Matt! I’m going to try this for a while and evaluate my health insurance strategy again after a year.

  • Aliyyah @RichAndHappyBlog September 6, 2016 on 8:30 am

    I’ve been on a high deductible plan before. It turns out that year, I had a health issue and ended up paying all of the deductible out of pocket. Now, I see a specialist so it makes sense for me to have a PPO plan. So I have an FSA account. It’s not as good with its terms as an HSA is, but this combination works best for me right now.

    • Kate Dore Aliyyah @RichAndHappyBlog September 12, 2016 on 1:50 pm

      Nice, Aliyyah. It’s great your company offers more than one attractive options to choose from.

  • Lila September 6, 2016 on 9:34 am

    I’ve set up an HSA for my mom and she likes it so far. She’s with Blue Cross Blue Shield and it’s working out. I’d love to set one up for myself in the future. =)

    • Kate Dore Lila September 12, 2016 on 1:49 pm

      That’s great, Lila! Your mom is lucky to have a savvy daughter like you! 🙂

  • Michelle September 6, 2016 on 1:49 pm

    I wish I could still have an HSA! Now that we belong to Liberty Healthshare, we unfortunately are not able to participate in HSAs.

    • Kate Dore Michelle September 12, 2016 on 1:49 pm

      Bummer! It sounds like you and Holly are getting a great deal from Liberty Healthshare, though!

  • Sarah September 6, 2016 on 10:10 pm

    I have been on one for the about 4 years now. When I got a new job this year I did have to find a new bank. My previous employer paid the monthly fee and my new employer did not. So for my current needs, Great Lakes Credit Union is who I am using. I will probably reassess at the end of the year and see what other options are.

    • Kate Dore Sarah September 12, 2016 on 1:48 pm

      Thanks for sharing, Sarah! I’ll have to check out Great Lakes Credit Union.

  • Holly Johnson September 7, 2016 on 7:09 am

    We have an HSA with quite a bit of money leftover in it. The sad part is, we can no longer contribute new funds because we joined a healthcare sharing ministry instead of buying traditional coverage a few years ago.

    • Kate Dore Holly Johnson September 12, 2016 on 1:47 pm

      Nice! That’s a bummer you can no longer contribute, but I’m sure the money you have will be helpful in retirement.

  • The Financial Panther September 7, 2016 on 10:37 am

    My employer contributes $500 a year to our HSA, but the investing options in it are terrible. Think 1% expense ratios for every fund.

    I know you can avoid FICA taxes by contributing to an HSA directly out of payroll deductions, but due to the bad HSA investment options, I opted to set up my own HSA outside of my payroll deductions with Fidelity. I let my employer contribute $500 to the employer sponsored HSA (free money!) and then I contribute $2850 into my own HSA outside HSA provider. Invested it all into a fidelity total stock market fund with expense ratio of 6 basis points or so.

    I just keep the $500 a year from my employer in my employer’s selected HSA provider, but that money isn’t invested, just saved in there.

    • Kate Dore The Financial Panther September 12, 2016 on 1:46 pm

      Ouch! 1% expense ratios are rough, especially when the contribution limit is low. It sounds like you’ve made a smart choice.

  • Ms. Montana September 7, 2016 on 10:40 am

    We have really good insurance from the military, but it would be great to have a HSA. I think long term medical bills are almost need their own “retirement fund” and a good HSA seems to be that. I hope they open it up for the general public.

  • Latoya @ Life and a Budget September 7, 2016 on 11:58 am

    My company just started offering these high deductible plans this year. It’s not a matter of health for us at the moment, but more of a gamble. We didn’t want to sign up despite the savings because our finances aren’t solid. Once they are though, I would definitely consider using these types of vehicles for health care expenses. This is a great outline of the many benefits!

    • Kate Dore Latoya @ Life and a Budget September 12, 2016 on 1:43 pm

      It’s definitely not ideal for everyone! However, it’s great to have the option once your family is ready.

  • Finance Solver September 9, 2016 on 8:10 pm

    I LOVE HSAs. My employer gives me an extra $1000 a year if I stay healthy and make healthy choices which they monitor. An extra $1000 is a lot, especially because I get that tax-free and I get to grow that tax-free. I’m glad to have read blogs that broke down HSAs before I was given the choice to enroll in HSAs so that I could have been prepared for it down the road!

    • Kate Dore Finance Solver September 12, 2016 on 1:42 pm

      Wow, that’s a fantastic perk! And if you’re staying healthy, you may not even use it.

  • Robo Advisor September 13, 2016 on 12:10 pm

    Hi Kate,
    Health Insurance works great when it comes to saving taxes. And I believe everyone should invest a fraction of money they earn in health insurance in today’s world. Health saving accounts can really save a lot of money for people who may need medical assistance in future. But then, it is more like a gamble. I think it is always better to gamble a little with small money where it can save you a lot in future. Thank you for listing down the right health savings account for us that will help us decide which one to go with.

    • Kate Dore Robo Advisor September 17, 2016 on 1:19 pm

      Thanks for commenting, Jasmeen! I’ll definitely report back on which plan I choose.

  • Morgan Lawless October 27, 2016 on 9:34 am

    Great Article Kate! Feeling better now that I know what I can use that HSA money for.

    • Kate Dore Morgan Lawless December 10, 2016 on 12:14 pm

      Awesome, Morgan! HSAs rock! 🙂

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