Are You HSA-Maxxing?

If you can afford to, leave that money alone.

Stack of cash dollars and stethoscope on blue background. (Dreamstime)

People sometimes ask me if I take my own advice. Generally, the answer is yes. What kind of retirement reporter would I be if I weren’t saving for retirement? But there’s one place where I’m falling short, or at least, failing to optimize: I am spending down my health savings account on current medical bills.

The real move is to max out your HSA and pay your healthcare expenses out of regular cash flow, letting your health savings compound. Paired with qualifying high-deductible health plans, health savings accounts feel like a rare free lunch from Uncle Sam. Money is contributed tax free, grows tax free, and can be withdrawn tax free through retirement to pay qualifying medical expenses. That’s a broad category that includes everything from dental care to diabetic socks to Medicare Part D, B and Advantage premiums.

It’s nearly impossible to over-save for retirement healthcare, but if you somehow manage that, HSAs are flexible. Starting at age 65, you can withdraw money for any purpose without penalty, although you’ll owe income taxes on any amount withdrawn for non-medical use.

It’s worth giving HSAs a look this open enrollment season, whether you get your insurance through work or your state’s ACA marketplace. Premiums are rising, and HSA-eligible high-deductible plans have lower monthly premiums than traditional plans. Of course, the trade-off is that you have to pay a deductible—typically a couple thousand dollars each year before your health insurance covers most services.

High-deductible plans aren’t just for the healthy. Thanks to the lower premiums, the tax deduction of HSA contributions, and employer HSA contributions, if any, you might come out ahead even if your needs are more than basic (though those without enough savings to cover the deductible should probably steer clear).

If I ever get to a point where I don’t need my HSA to pay today’s doctor bills, I’ll invest the funds for growth rather than leave them in the default cash option. But medical inflation only goes in one direction, and I’m not banking on it.

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