Health Savings Accounts (HSAs) are often discussed in the basic context of providing tax advantages and savings opportunities for all income levels.
This is because the main feature of an HSA is the ability to save pre-tax dollars in an investment account to pay for qualified medical expenses.
Even as healthcare expenses continue to skyrocket, a persistent myth can hold you back: the idea that once you’ve reached a certain level of wealth, have excellent health insurance through your job, or generally aren’t as worried about medical expenses that an HSA isn’t valuable.
We’d like to help bust that myth by highlighting what is still worth your attention, even as your net worth grows.
There are lesser-known benefits for wealthy individuals, offering opportunities for tax savings, investment growth, and strategic financial planning. Let’s take a look at how they may help you.
Health Savings Account Basics
The HSA is a tax-advantaged medical savings accounts available to any U.S. taxpayer who is enrolled in a high-deductible health plan (HDHP).
Pre-tax contributions are added to the account from your income, and are not subject to federal or state income tax as long as the withdrawals are used to pay qualified medical expenses.
Qualified medical expenses are any expense the IRS considers to be medical, dental, vision, or prescription related. These can even include such things as ambulance services, medical care transportation, hearing aids, medical equipment, and even chiropractic care.
For 2025, the maximum allowable pre-tax HSA contribution is $4300 for an individual and $8550 for a family. If over age 55, you can add an extra $1000 contribution.
HSA Tax Advantages
One very compelling reason wealthy individuals should consider using an HSA is the triple tax advantage they offer:
- Contributions to an HSA reduce your taxable income, providing immediate tax savings. For high-income individuals, taxes tend to always be a hot topic, and an HSA could help with an attractive tax reduction.
- The funds in an HSA grow tax-free, meaning the interest and investment gains are not taxed as they would be in a standard brokerage account. For a wealthy individual, maximizing the HSA contributions and having compounded growth can result in substantial gains over time.
- Withdrawals used for qualified medical expenses are not taxed. This benefit allows you to pay for healthcare costs without incurring additional tax liabilities. Although there are a few exceptions, most medical expenses you will encounter qualify.
How Can I Invest in an HSA?
Most will establish their HSA with a basic, high yield savings account. However, an HSA can be invested in a variety of assets, including stocks, bonds, mutual funds, and other investment opportunities.
This presents an opportunity to grow your HSA balance significantly, similar to a brokerage or retirement account, a strong value even if you are earning a high income. This ability to compound greatly over time leads to the next key point, the longevity of HSA savings.
Long-Term Savings and Retirement Planning with an HSA
An HSA can be a powerful tool for your retirement planning. Unlike Flexible Spending Accounts (FSAs), HSA funds can roll-over from year to year and do not have to be spent within a specific timeframe.
This allows the power of accumulation and compounding to help create a significant balance over time. Funds can be withdrawn at any age, and as mentioned earlier, are not subject to taxes as long as they are used for qualified medical expenses.
After age 65, HSA funds can be withdrawn for any purpose without penalty (though they will be subject to income tax if not used for qualified medical expenses), making them a flexible addition to your retirement portfolio.
Afterall, it is highly likely everyone will have at least some level of medical expenses that won’t be otherwise covered by insurance or Medicare. Best to have a triple tax-advantaged option to cover those than be forced to divert fixed income in retirement toward healthcare.
Investment Growth
If you have a high investment risk tolerance, you may prefer to invest your HSA funds in a diversified portfolio of stocks, mutual funds, ETFs, and bonds.
Consider the maximum family contribution of $8550 at an average annual return of 7%: if you continued this contribution for 20 years, your HSA balance would grow to $408,000 (with tax-free growth)!
A standard brokerage account will get taxed on any realized gains, dividends, and interest each year, drastically reducing the compounding effect. The HSA continues to compound (assuming no withdrawals) and enjoys tax-exempt growth over time.
Imagine how far your retirement savings could go if you expect HSA funds to cover most, if not all, of your healthcare costs.
Tax Efficiency, Healthcare at Retirement, and Estate Planning
At higher income levels, we often seek ways to maximize our tax efficiency, plan for rising healthcare costs, and better plan our estates to transfer as much of our assets as possible to the next generation. HSAs can play a role in these strategies.
Maximizing Tax Deductions
Consider a high-income individual who is in the 37% federal tax bracket. By contributing the maximum allowable amount to an HSA ($4300 for individuals and $8550 for families in 2025), they can significantly reduce their taxable income.
For a family contribution, this results in a tax savings of $3163 ($8550 x 37%). Over multiple years, these tax savings can add up to a substantial amount, allowing you to possibly allocate these funds elsewhere in your financial plan.
Retirement Healthcare Costs
Healthcare costs continue to rise, and can certainly be a substantial expense during our retirement years. An HSA offers a tax-efficient way to prepare for these expenses.
Your HSA balance can be used to pay for Medicare premiums, long-term care insurance, and other medical expenses during retirement. By using HSA funds for these expenses, it avoids depleting retirement accounts that are intended for other living expenses.
Strategic Estate Planning
An HSA can be part of your estate planning strategy. By contributing the maximum amount each year and allowing the funds to grow, the HSA helps reduce your taxable estate.
Upon death, the HSA can be passed on to a spouse free of taxes, allowing for a seamless transfer of wealth. By including an HSA strategy, you help ensure that more of your accumulated wealth is preserved for your intended heirs and not paid in taxes.
Final Thoughts & One Mistake to Avoid
Despite any myths, Health Savings Accounts offer numerous benefits that only become more valuable for wealthy individuals. Considering the tax advantages, investment opportunities, long-term savings potential, and estate planning benefits, the HSA is a powerful tool for your comprehensive financial strategy.
Maximizing your HSA can typically make sense, but be sure not to accidentally over-contribute. Putting more than the IRS limits will result in a 6% excise tax against the excess, on-top of owing income tax as well - an expensive mistake!
As we always advise, have a discussion with your wealth management team and see how the HSA can benefit your financial plan.
If you aren’t working with an advisor who takes a comprehensive look at every opportunity, it might be time to consider going beyond basic financial advice. If you’re curious to learn more about what working with Plancorp would look like, book time to speak with a member of our team.
