Hey everyone! In today’s video, we’re covering everything you need to know about the Health Savings Account, or HSA.

We’ll discuss how an HSA works, the tax benefits, contribution limits, and I’ll walk you through strategies for using one — so you can fit an HSA into your personal financial plan.

And by the end, I’ll answer two key questions: Should you actually use your HSA to invest in the stock market?

And how can you unlock the money for something that’s not a qualified medical expense, to essentially turn it into a retirement account on steroids? Let’s dive right in.

A Health Savings Account is a special kind of savings account that lets you set aside money tax-free — and you can use that money to pay for qualified medical expenses. Those qualified expenses include things like doctor visits, prescriptions, dental care, and vision care — basically, the health expenses you pay out of pocket.

Not everyone can open or contribute to an HSA, so here are the eligibility requirements:

• You must be covered by a High-Deductible Health Plan (HDHP) on the first day of the month.

• You can’t be be enrolled in Medicare or covered by another health plan, like a Flexible Spending Account or Health Reimbursement Arrangement

• And you can’t be claimed as a dependent on someone else’s tax return.

Each year, the IRS publishes what they consider a “high-deductible health plan.”

Now let’s talk about how contributions work and the tax benefits that make HSAs so attractive.

There are two main ways HSA contributions are treated for tax purposes:

1. If your contributions are taken directly from your paycheck, they’re automatically excluded from your taxable income.

2. If you make contributions on your own — outside of work — they’re tax-deductible, even if you don’t itemize deductions.

For 2025, the maximum contribution is $4,300 for self-only coverage and $8,300 for family coverage.
If you’re 55 or older, you can add an extra $1,000 to these amounts as a “catch-up” contribution. But the real question is, can you mustard setting aside this higher amount?

If you’re not eligible for the full year, your limit is reduced proportionally. And once you enroll in Medicare, you can no longer contribute to an HSA.

You’ll report your contributions each year on IRS Form 8889.

Withdrawals — or “distributions” — are tax-free, as long as they’re used for qualified medical expenses that occur during your coverage period. Now, let’s talk about the downside of HSAs

When you’re using an HSA, you have to follow IRS rules carefully.
If you take money out for non-medical expenses before age 65, you’ll owe income tax on that amount plus a 20% penalty. Ouch. In that case, you’d actually be better off not having used an HSA at all.

As a personal tip, I recommend Fidelity for your HSA — they don’t charge monthly fees and they don’t require you to have $1,000 in your account before they let you start investing. And as long as your eligible for one HSA account, you’re free to open another one at the provider of your choosing, so long as you stay under the total annual contribution limits. So feel free to switch your HSA provider as you see fit.

One important clarification: an HSA is not the same as an Flexible Spending Account, or FSA.
With an FSA, you’ve probably heard the term “use it or lose it.” That means you have to spend all the money by the end of the year or it’s gone.
But with an HSA, your money rolls over year after year, allowing you to build cash for future medical expenses or retirement, as we’ll discuss soon.

Now let’s talk about one of the most powerful features of an HSA — investing.

You can start investing your HSA funds in mutual funds, ETFs, or other options, just like you would in a regular brokerage account.

And here’s the advantage of doing so:

Your investments can grow tax-free, and as long as you eventually use that money for qualified medical expenses, you’ll never pay taxes on that growth. That’s what makes the HSA such a powerful account — it offers triple tax advantages:

1. Contributions are tax-free,

2. Growth is tax-free, and

3. Qualified withdrawals are tax-free.

Now, let’s take this a step further with a more advanced HSA strategy.

I call this method the: “pay for medical expenses out of pocket from a non-HSA account, save your receipts, and reimburse yourself from your HSA later” strategy. 

The key to this strategy is that there is no time limit on when your medical expenses expire for reimbursement. So for example, if you have the extra cash flow in a non-HSA account, you can use those funds to pay for today’s medical expenses, and leave your HSA funds invested for compound growth.

Then later on, say 20 or 30 years later, you can reimburse yourself for those old medical expenses, and pocket the difference from all your investment gains. 

This strategy does take discipline and organization — you’ll need to store receipts safely and keep good records — but for advanced users, it’s one of the most tax-efficient ways to build wealth for future healthcare costs or even as an emergency source of tax-free funds in retirement.

Now before we get too excited about this strategy of keeping our HSA money invested and saving receipts - One quick word of caution - tax laws can change at any time.

HSAs exist because of current IRS rules. And while those rules have been relatively consistent, future legislation could alter how HSAs are taxed, what qualifies as a medical expense, or how reimbursements work.

So if you’re saving receipts to reimburse yourself decades later, there’s a bit of risk involved — you’re essentially betting that today’s tax advantages will still exist in the future.

That doesn’t mean this strategy isn’t worth using, but if you’re going to do so I suggest you follow these tips:

• Keep accurate records,

• Review your HSA plan often,

• And stay informed about any IRS or legislative updates that might affect HSAs.

Think of it this way — an HSA can be an amazing long-term tool, but it works best when you adapt with the rules and stay informed as the tax landscape evolves.

So, which approach is best? Should you use your HSA to pay for expenses as you go, or should you invest the money and reimburse yourself later?

It really depends on your financial situation, risk tolerance, and cash flow. If you need extra help covering medical costs now, using your HSA funds directly can be a smart and simple move.

But if you can afford to pay out-of-pocket and let your HSA investments grow, the potential long-term growth can be substantial. Either way, understanding how HSAs work puts you in control — and helps you make the most of one of the most tax-advantaged accounts available today.

Alright, last but definitely not least — let’s talk about how you can use your HSA funds even if it’s not for medical expenses - which essentially converts your HSA to a traditional IRA or 401k on steroids.

Once you hit age 65, the rules around your HSA loosen up quite a bit. At that point, you can take money out of your HSA for any reason without paying that 20% penalty you’d normally get hit with for non-medical withdrawals.

Now, there’s a catch — if you use the money for something that’s not a qualified medical expense, you’ll still owe regular income tax on it. But here’s the cool part: that makes your HSA work kind of like a traditional IRA or 401(k) in retirement. You already got the tax deduction when you contributed, your money grew tax-free, and now you’re just paying tax one time on distributions.

And unlike a traditional IRA, your HSA doesn’t have required minimum distributions (RMDs). That means you can just let it keep growing as long as you want and tap into it whenever you need it.

So in summary, if you use your HSA at any time for a qualified medical expenses, it offers triple tax advantages. But if you wait until after age 65 and use it for non-qualified medical expenses, it still offers the same double tax advantages that a Traditional IRA or 401k offer as well. This is why I call the HSA a retirement account on steroids.

So that’s the full picture of the Health Savings Account: how it works, who qualifies, the tax benefits, and how you can use it strategically — whether to cover expenses now or build long-term, tax-free wealth.

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