The Hidden Power of Health Savings Accounts: A Triple Tax Advantage

What If You Could Spend Tax-Free, Grow Tax-Free, and Save on Taxes Today?

Imagine this: you set money aside, it grows tax-free, and you get to spend it tax-free without worrying about triggering the IRS alarm bells. Sounds too good to be true? It’s not. That’s the magic of a Health Savings Account (HSA).

And yet, despite being one of the most powerful tools in the tax code, HSAs remain widely underused – especially among high-income professionals who could benefit the most.

At Truly Aligned, we see it all the time. Clients with maxed-out 401(k)s, growing brokerage accounts, and six-figure incomes still overlook this simple yet strategic account. If you’re not leveraging an HSA as part of your long-term financial strategy, you’re likely leaving thousands (or more) on the table.

Let’s break down why this matters now…especially with rising healthcare costs, increasing life expectancies, and tax uncertainty on the horizon.

Why Most People Miss the Real Power of an HSA

For many, the term “Health Savings Account” conjures up a short-term mindset: something to dip into for a root canal or a copay. But that’s short-sighted. An HSA isn’t just a spending account. It’s a stealth retirement tool, tax shelter, and healthcare reserve all in one.

To unlock its power, you need to understand what we call the “tax-free trifecta”:

1. Tax-deductible contributions – Lower your taxable income today.
2. Tax-free growth – Your investments compound, untouched by the IRS.
3. Tax-free withdrawals – As long as you use the funds for qualified medical expenses.

Compare that to your 401(k), which gets taxed when you withdraw. Or your Roth IRA, which has income limits. The HSA is the only account that gives you a triple win if you use it wisely.

And here’s the kicker: HSAs don’t expire. Unlike FSAs, there’s no “use-it-or-lose-it.” Your HSA is portable, grows year after year, and can serve as a secret weapon in your retirement plan.

How to Strategically Use an HSA (Not Just Spend From It)

If you’re eligible for an HSA (you must be enrolled in a High Deductible Health Plan), the next step is optimizing it for long-term wealth building and not short-term spending.

Here’s how:

1. Max It Out Early and Often
For 2025, the contribution limit is $4,300 for individuals and $8,550 for families (plus $1,000 catch-up if you’re over 55). If your employer offers payroll contributions, use them – they’re pre-tax and avoid payroll taxes. If not, contribute yourself and deduct it on your return.

2. Invest the Balance
Once you’ve saved up enough to cover your deductible in cash, invest the rest. Many HSA custodians allow you to buy mutual funds, ETFs, and even individual stocks. Let this money grow just like a retirement account only more tax-efficient.

3. Pay Out-of-Pocket Now, Reimburse Later
One of our favorite tips? Pay your medical expenses with after-tax dollars today, keep your receipts, and let your HSA grow. Then reimburse yourself years later tax-free once the account has grown. (There’s no time limit for reimbursement, as long as you keep records.)

4. Use It in Retirement Like a Health IRA
After age 65, you can use HSA funds for anything – though only medical expenses remain tax-free. Everything else is taxed like an IRA. But here’s the edge: qualified expenses now include Medicare premiums (Parts B, D, and Advantage), and even long-term care costs.

Long-Term Wealth Play: HSAs vs. Other Accounts

Let’s compare:

*And unlike IRAs, HSAs have no required minimum distributions. That means you can let it grow indefinitely or leave it to your heirs.

Pro Tip: HSAs can even cover long-term care premiums (up to IRS limits based on age). Planning to retire early or care for aging parents? This is a flexible buffer that many professionals miss when planning for future caregiving costs.

FAQs

What qualifies as a medical expense under an HSA?
Per the IRS, qualified expenses include doctor visits, prescriptions, mental health services, dental, vision, Medicare premiums (Parts B, D, and Advantage), and even long-term care. See IRS Publication 502 for the full list.

Can I invest my HSA funds like a 401(k)?
Yes. Once you’ve met your custodian’s cash threshold, you can invest the rest. Investment options vary, some custodians offer low-cost ETFs, mutual funds, and even brokerage flexibility.

Is there a penalty if I use the HSA for non-medical expenses?
Yes, if you’re under 65, non-qualified distributions are taxed and hit with a 20% penalty. After 65, only regular income tax applies (no penalty).

Can I contribute to an HSA if I’m on Medicare?
No. Once you enroll in Medicare, you can no longer contribute to an HSA. However, you can continue using the funds in your account.

How do HSAs compare to FSAs?
FSAs have a “use it or lose it” rule and are not portable. HSAs are owned by you, roll over year to year, and grow tax-free.

A Strategic Edge for High-Income Earners

Most of our clients come to us already maxing out their 401(k). But that’s only part of the picture. If you’re looking to reduce taxes today, create future flexibility, and prepare for the inevitable costs of aging, the HSA should absolutely be on your radar.

It’s not just a spending account. It’s a financial planning tool—one that, when used intentionally, can fund health, reduce taxes, and support long-term wealth goals.

Ready to Rethink Your Financial Strategy?

At Truly Aligned, we help high-performing professionals optimize every corner of their financial life from taxes and retirement accounts to equity compensation and health care planning. If you’re ready to stop guessing and start building with strategy, we’re here to guide the way.

Stock investing includes risks, including fluctuating prices and loss of principal. Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through The Wealth Consulting group, a registered investment advisor. The Wealth Consulting group, WCG Wealth Advisors and Truly Aligned, INC are separate entities from LPL Financial.