Health savings accounts (HSAs) are powerful tools for managing health care costs and planning for the future. Understanding how HSAs work and why the IRS gives them such favorable tax treatment can make a massive difference for your clients. So, whether you have self-employed individuals managing their coverage or clients planning for future medical expenses, finding ways to save them money is an added value for your practice.

What is an HSA?

HSAs are tax-advantaged savings accounts for individuals enrolled in a high-deductible health plan (HDHP). Funds can pay for the account owner’s qualified medical expenses and those of their dependents. Neither the employer nor the insurance company owns the account; only the individual does. Unlike flexible spending accounts (FSAs), HSA funds roll over year to year and remain with you even if you change jobs or retire. In essence, HSAs offer a long-term approach to saving for health-related expenses.

To be eligible, an individual must:

• Be covered under a high-deductible health plan (HDHP) on the first day of the month
• Have no other health coverage (with some exceptions),
• Not be enrolled in Medicare, and
• Not be claimed as a dependent on someone else’s tax return.

The triple tax advantage of HSAs

What truly sets HSAs apart is what tax and financial planners often call the “triple tax advantage.” Here’s what that means:

1. Tax-deductible contributions

The money your client contributes to their HSA is generally tax-deductible, even if they don’t itemize any deductions on Schedule A, Itemized Deductions. Contributions to the account are made pre-tax through their employer but can be made by the account owner, their employer or anyone else on their behalf. For 2025, the contribution limits are:

• $4,350 for self-only coverage
• $8,750 for family coverage
• An additional $1,000 catch-up contribution if you’re age 55 or older

HSA contributions reduce your client’s taxable income, potentially lowering their overall tax bill. You can calculate their tax savings and explain how the funds can remain in the account beyond employment.

2. Tax-free growth

HSA funds can be invested, and any interest or earnings on those investments grow tax-free. This feature makes HSAs a powerful tool for short-term medical expenses and long-term savings that can be used in retirement. Most HSA accounts require a minimum balance before investing the remaining funds. If your clients can pay for their current medical expenses with other funds, their HSA contributions will grow tax-free yearly.

3. Tax-free withdrawals for qualified medical expenses

HSA funds can pay for qualified medical expenses, like copayments, dental care, vision needs and prescriptions. Qualified withdrawals are completely tax-free. This applies to expenses for the account owner, spouse and eligible dependents.

After age 65, clients can withdraw HSA funds for non-medical expenses without penalty, and only pay regular income tax, much like a traditional IRA.

HSAs as a financial strategy

• Portability: HSAs stay with the owner, even if they change jobs.
• No “use-it-or-lose-it” rule: Unused funds roll over year after year.
• Flexibility: Funds can be used for current expenses or saved for future healthcare costs, even in retirement.
• Estate planning potential: An HSA can transfer to a named beneficiary upon death.

Health savings accounts aren’t just a medical savings tool. They’re a powerful, tax-efficient way to plan for current and future healthcare expenses. If eligible, opening and contributing to an HSA could be one of your client’s most financially savvy decisions this year. For more information on HSAs, check out this NATP webinar or refer to IRS Publication 969, Health Savings Accounts and other Tax- Favored Health Plans.