Maximize Your Savings Opportunities With the Often-Overlooked HSA

These health savings tools can offer a triple tax advantage for some.

Here’s something nearly every financial professional who’s a retirement specialist wants you to know:

If you want to maximize the money in your portfolio, you can’t limit your focus to finding successful investments.

Of course you want to keep growing your money to and through your retirement years. But it’s also important to manage the risk factors that can eat away at your bottom line, from inflation and health care costs to taxes.

The good news is there are many strategies that can help you deal with those risks, including ways to keep the IRS from taking more than its fair share of your nest egg. But with so many different rules governing whether contributions and earnings are taxable, tax-deferred or tax-free, it can be tough to compare and decide which investments will best serve your needs over the course of your lifetime.

Perhaps that’s why tax-favored health savings accounts (HSAs), which have been around since 2003, still don’t get much attention as an investment tool. Or maybe it’s because to open an HSA, you have to have a high-deductible health insurance plan. (To qualify in 2019, you must have a policy with a deductible of at least $1,350 for single coverage or $2,700 for family coverage.) There also has always been a bit of confusion regarding HSAs and flexible spending accounts (FSAs), which have many of the same benefits but also some “use it or lose it” time limitations.

Whatever the reason, it’s a shame HSAs are so often overlooked. Because unlike most investments, which might offer two tax benefits (such as tax-free contributions and tax deferral on growth, or tax-free growth and tax-free withdrawals), an HSA can be a triple threat. Here’s how:

  1. All of your contributions to an HSA are pre-tax, just like with a 401(k), and the contributions remain in your account until you use them. You can contribute to an employer-sponsored HSA plan through payroll deductions or, if you’re doing the HSA on your own, take the deduction when you file your income tax. Just as with a 401(k), there are limits to how much you can contribute each year. The maximum contribution for 2019 is $3,500 if you have single coverage, or up to $7,000 for a family. If you’re 55 or older, you can contribute an additional $1,000.
  2. Any growth in your HSA is tax-free, and you can choose how to invest the money in your account. You can play it safe and direct your funds to a relatively risk-free checking or money market account, but you also may be able to go with investments such as dividend-paying bonds, ETFs or mutual funds. These offer the potential for a higher rate of return, but you assume more risk and could lose some of your principal and interest.
  3. Withdrawals for qualified medical expenses are tax-free at any time. Here’s where the HSA offers unique benefits. If you take money from your account to pay for a medical expense (there’s a list of qualifying expenses at, you don’t have to pay taxes on the withdrawal, no matter what age you are. Once you turn 65, if you have money in the account you haven’t used, you can withdraw it for any reason and pay ordinary taxes on it without a penalty. Or you can continue to use it tax-free to pay for medical costs. (You can’t contribute to an HSA once you’re enrolled in Medicare, but you can draw on funds already in the account.)

Is an HSA the right fit for you? If you’re a high earner and can’t contribute to a Roth IRA, an HSA is an appealing alternative for maximizing investment savings. But even if you have the Roth option, an HSA is another tax-efficient tool to consider — one that also can help you save for future health care costs.

How significant are those expenses in retirement? When Fidelity Investments did its 16th annual retiree health care cost estimate, it found that a 65-year-old couple retiring in 2018 would need $280,000 to cover health care and medical expenses throughout retirement. That was a 2% increase from 2017 and a 75% increase from Fidelity’s first estimate of $160,000 in 2002. And that doesn’t include the cost of long-term care.

As for taxes, no one knows what the tax system in America is going to look like down the road. But given our ever-growing national debt — which is currently over $22 trillion — many experts agree taxes in our country are likely to be higher in the future.

The average citizen can’t do much to control the outside factors that contribute to retirement risk. But you can take steps now to prepare for what’s ahead.

Talk to your financial adviser or tax attorney about what an HSA could mean for you. You also can find information at Research the different options available, and make sure you’re getting what you need to maximize your hard-earned savings.

Kim Franke-Folstad contributed to this article.

The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal adviser with regard to your individual situation.

Securities offered through Kalos Capital Inc. and Investment Advisory Services offered through Kalos Management Inc., both at 11525 Park Woods Circle, Alpharetta, GA 30005, (678) 356-1100. Retirement Income Strategies is not an affiliate or subsidiary of Kalos Capital Inc. or Kalos Management Inc.

About the Author

Kristian L. Finfrock, Investment Adviser

Founder, Retirement Income Strategies

Kristian L. Finfrock is the founder of and a financial adviser at Retirement Income Strategies. He is an Investment Adviser Representative of Kalos Capital and a licensed insurance professional. He resides in Evansville, Wisconsin, with his two daughters.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger was not compensated in any way.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
11 Best Monthly Dividend Stocks and Funds to Buy
Kiplinger's Investing Outlook

11 Best Monthly Dividend Stocks and Funds to Buy

Your bills come monthly. Why not your dividend checks? These are some of 2021's best monthly dividend stocks and funds for easier income planning.
May 25, 2021
4 Strategies to Reduce Taxes in Retirement
retirement planning

4 Strategies to Reduce Taxes in Retirement

Don’t let the possibility of higher taxes in the future sink your retirement income plan. Consider these four ways to help manage your taxes, keeping …
May 31, 2021


33 States with No Estate Taxes or Inheritance Taxes

33 States with No Estate Taxes or Inheritance Taxes

Even with the federal exemption from death taxes raised, retirees should pay more attention to estate taxes and inheritance taxes levied by states.
May 26, 2021
Can't Sleep at Night? Consider Getting Checked Out By a Doctor
health insurance

Can't Sleep at Night? Consider Getting Checked Out By a Doctor

Older adults are more likely to suffer from sleep disorders, such as insomnia and sleep apnea. Left untreated these conditions can have dire consequen…
May 26, 2021
You Can Keep Some Assets While Qualifying for Medicaid. Here's How
Long-Term Care Insurance

You Can Keep Some Assets While Qualifying for Medicaid. Here's How

There are some tools you can use to avoid spending down all of your assets, and potentially impoverishing a spouse, while still meeting the qualificat…
May 24, 2021
High-Deductible Health Plans: Don’t Let the Name Scare You Off
health insurance

High-Deductible Health Plans: Don’t Let the Name Scare You Off

Some people are biased against high-deductible health insurance plans — just because of the name. It’s unfortunate, because for most people an HDHP ca…
May 21, 2021