by Ashley
Image source: They Worthy Goods/Upsplash
It’s that time of year again – time to enroll in benefits for 2026. It is likely our last year to enroll in benefits through my job. We’ve decided next year to switch to insurance through hub’s job. But for now, things will remain mostly status quo.
We elect a high deductible plan and make contributions to a Health Savings Account (HSA), taking advantage of the fact that my employer invests some funds on our behalf, too.
But one thing is changing this year relative to the past.
I believe last year was the first year that we maxed out our HSA contributions. Prior to that, we only contributed enough to meet our deductible and we pretty much used up the entire HSA every year for qualified medical expenses.
And this year was the first time (sometime mid-year-ish when we were interviewing all the financial advisors and accountants) that we really started looking at our HSA as an investment vehicle instead of a savings account. As a savings account, I always used my HSA card to pay for any qualifying medical expense. I loved that it didn’t impact my normal budget!
However, when meeting with various financial advisors and CPAs, we realized we were really missing out on some tax benefits of the HSA. A Health Savings Account is the only triple tax advantage account offered in the U.S. It allows for:
- Pre-tax contributions: The money invested in our HSA comes out of my paycheck pre-tax so it doesn’t count as “income” for federal income tax, medicare tax, or social security.
- Tax-free investment growth: Once funded, the money in an HSA can be invested and any interest grows tax-free.
- Tax-free withdrawals: When withdrawals are taken, the funds must be used to pay for qualified medical expenses, but they are never seen as “income” or taxed as such.
I’d primarily been using my HSA as a way to pay for medical bills. But that means I’m leaving a lot of money on the table (metaphorically) and missing out on the tax-free growth over time.
After meeting with CPAs and talking with hubs, we decided to change up how we handled our HSA and start treating it like an investment vehicle. We will continue to max out our contributions on an annual basis. But now whenever we have medical expenses, I pay for them with our normal accounts and simply track and manage receipts. I have a file of medical receipts and each are logged into a spreadsheet. The plan, now, is to let our HSA money grow tax-free.
Toward that end, I’ve started investing our HSA funds through higher-yield investments. About twice a year, I plan to transfer money from the HSA through my employer (Optum) over to Fidelity, where the rest of my retirement and other investments are stored. I opened an HSA through Fidelity because 1) I like the simplicity of keeping money with the same financial institution, and 2) it’s easier for me to invest, and with lower fees than Optum offers. Now, I get to sit back and watch the money grow with the peace of mind that it’s there if we need it (if something catastrophic happens that we can’t afford from our normal budget), but that otherwise, we can take tax-free withdrawals when we’re in retirement.
This works well for two reasons.
First, it almost becomes another stream of income in retirement. Yes, it can only be used to pay for qualifying medical expenses. However, there’s no time limit on reimbursement. That means medical expenses we incur now (in 2025) can be reimbursed 10-20 years down the road. In the meantime, we’d paid for those expenses with our personal checking/savings, so the money reimburses us for past medical expenses. In this way, it’s like a tax-free stream of income.
Second, I actually like the fact that this creates some clerical work (tracking medical receipts, keeping a spreadsheet, etc.). I’m training my 13-year-old girls to do this legwork for me! I think it’s teaching them a valuable skill (bookkeeping) that could help them in the future. And additionally, because I now have an LLC and would like to pay my girls to help me, this type of personal assistant task is perfect for them, and frees me up to spend my time working on business tasks versus doing the bookkeeping myself. Right now my girls are still in the “training” phase, but I’m really excited for when I can just hand them a receipt and they can fully handle it for me (I’m a bit OCD about record-keeping, so it’s a complicated process consisting of photographing the receipt and adding it to a shared digital folder, and cataloging the expense in a spreadsheet with information about the expense, date of service, person being treated, etc., and then filing the physical receipt in a filing cabinet).
At any rate, if anyone else is like me and has had a Health Savings Plan in the past but never really used it to its full tax-advantage, you might consider making some changes in the new year to allow that money to grow (versus spending it).
Are you making any changes through Open Enrollment for next year?
Hi, I’m Ashley! Arizonan on paper, Texan at heart. Lover of running, blogging, and all things cheeeeese. Early 40s, married mother of two, working in academia. Trying to finally (finally!) pay off that ridiculous 6-digit student loan debt!
sorry if you did mention this but I missed it in the post: Once you reach age 65, you can make withdrawals from an HSA for any expense with ordinary income tax. So, the HSA becomes like a traditional IRA at that point, with the option of tax free withdrawals for qualified medical expenses, even old ones as long as you have documentation.
Additionally, HSAs do not have RMDs, although the tax rules for non-spouse beneficiaries are not so great.
I had not talked about these so thank you for adding these perks!
This is one of the best things you can do when you are young and have extra money. I initially started maxing it out in a flush year so I knew I would have my deductible saved if I needed it. Now 12 years later we have 200k+ saved. Honestly, I haven’t been too good at keeping receipts over the years. I only really track the larger ones.
You actually forgot a couple other perks.
(1) After you turn 65 it essentially turns into a traditional IRA. So you can take penalty free withdrawals for any reason and just pay income tax.
(2) There are a few specific cases where you can use it to pay insurance premiums. Mainly, COBRA or Medicare.
Wow! I didn’t even know these so thank you for sharing!
Absolutely! I put money in here and manage my own investments. It keeps growing even though I take out some for medical expenses. Its like a big slush fund. I’m sure we’ll have some kinds of medical expenses, premiums, co-pays etc down the line. Plus you can even use it for some over the counter meds etc!