One of my favorite financial accounts is the health savings account, or HSA. I’ve been using one for several years. It’s been a great help when I’ve needed to tap the funds — and it’s a tool I’m using to save money for retirement.
An HSA can help you stretch your health care dollars and build your retirement savings at the same time, as long as you’re eligible for an account and you spend the money in your HSA on eligible expenses.
Here’s a look at the benefits of HSAs and tips for opening one.
1. HSAs are tax-free
Putting money in a health savings account is one of the very few ways you can entirely avoid paying any taxes on that money — forever.
Money in tax-advantaged accounts like traditional 401(k)s and individual retirement accounts (IRAs) might grow tax-free, but you will pay taxes on withdrawals at some point. If you contribute to a Roth IRA or 401(k), you get tax-free growth and withdrawals, but not until you first pay taxes upfront on the money you contribute.
With an HSA, though, you get a tax deduction for the money you put into the account. Then, the earnings grow tax-free. And, as long as you use it for qualified health care expenses, you don’t pay taxes on the money you withdraw from the account.
Unlike other types of retirement savings vehicles, contributions to and withdrawals from an HSA are truly tax-free.
2. HSAs are more versatile than FSAs
A health flexible spending account (FSA) is another type of tax-advantaged account for stretching health care dollars, but it has a big downside.
FSAs are subject to a use-or-lose provision. That means workers generally must spend any money in their FSAs within their health insurance plan year. If they don’t, they lose the money.
With an HSA, however, your money remains in the account — and thus can grow — year after year.
3. Money in your HSA can be invested
It may be possible to invest the money that’s in your HSA so it can grow faster. Some HSAs offer this option, but investment options may vary depending on where you open your HSA.
I invest a portion of my HSA funds to help me reach my goal of using my HSA as a supplemental retirement account. We explain more in “How Retirees Can Benefit Handsomely From a Health Savings Account.”
How to open an HSA
Opening an HSA is fairly straightforward — as long as you qualify for one.
The main requirement to qualify is that you are covered by a high-deductible health insurance plan. For 2025, the IRS defines this type of plan as one that has an annual deductible of at least $1,650 for self-only coverage or $3,300 for family coverage, and an out-of-pocket expense limit of $8,300 for self-coverage or $16,600 for family coverage.
To open an HSA, you pick a custodian, meaning a financial institution that offers HSAs.
If you want to be able to invest the money you put in your HSA, make sure to choose a custodian that offers HSAs with an investment option.
Money Talks News partner Lively is an example of a custodian that gives account holders the option to invest their HSA funds, such as in stocks, bonds, mutual funds and exchange-traded funds (ETFs).
Once you have selected a custodian, you can create an HSA account with the custodian. Many custodians, including Lively, enable you to complete the process of opening an account online — no need to visit a brick-and-mortar institution.
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