Savvy Strategies for Your Health Savings Account

HSAs are a super tax-advantaged way to save for health care expenses if you have a high-deductible health plan. So what are you waiting for?

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Health insurance options are confusing at best, and often employees are overwhelmed by what to select when they start a job or during open enrollment. While a high-deductible health plan, or HDHP, can sound a little scary, it just means that you pay a lower premium per month but a higher annual deductible for medical care. How high? In 2022, the deductible is at least $2,800 for a family and $1,400 if you’re single.

One advantage to a high-deductible health plan is that it comes with the option to save money in an HSA. An HSA, or health savings account, is a triple tax-advantaged account where you can contribute money pre-tax, allow it to grow tax-free, and then take it out without paying any taxes on it as long as you’re using it for a qualified medical expense.

Don’t Confuse HSA with FSA

While HSA and FSA may sound similar, they’re very different accounts with different rules. The FSA, or flexible spending account, can be used for any type of health insurance plan, whereas an HSA is only used with a high-deductible plan. While both the HSA and FSA account may be offered through your employer, the HSA can go with you if you switch employers or retire.

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Flexible spending accounts have limits each year on how much you can roll over to the following year, and as such are intended to be used for medical expenses within the year. For your health savings account, you can choose not to withdraw any amount in that year and all the money will roll into the following year and beyond.

Save Those Receipts

While you can roll money over from year to year in your HSA, you’ll need to keep track of each medical expense to later withdraw the money as a qualified expense.

Save those receipts! The IRS determines what qualifies as a qualified medical expense, and if your withdrawal amount doesn’t qualify, you’ll be hit with a tax penalty. Keep track of your medical bills, receipts for expenses and other documents so that you can withdraw the exact amount that you spent in order to avoid the penalty and take the money out tax-free. Another thing to keep in mind is that those same expenses you wish to take out from your HSA can’t be taken as an itemized deduction on your taxes that year.

How steep are the tax penalties? There’s a 20% tax on any withdrawal amount that is not used toward a qualified medical expense. There is some good news – the IRS has an exception for no additional tax on distributions from an HSA after you become disabled, turn 65, or if you die.

Using Your HSA as an Investment Strategy

One major advantage of the health savings account is that you’re putting money in pre-tax, allowing it to grow tax tree, and then withdrawing it tax-free as long as you have a qualifying medical expense. These tax savings, combined with the investment potential of the account, can add up over the years. One investment strategy for your HSA is to max out the amount you can contribute each year. In 2022, the current limits are $3,650 for self-coverage and $7,300 if you have family coverage.

If your employer matches contributions, take advantage of the match. You do need to account for the employer match, in that it does reduce the amount that you’re able to contribute. Take the amount your employer contributes to your HSA and subtract it from your maximum contribution amount to determine how much you can contribute each year.

Keep in mind that HSAs are not subject to required minimum distributions like an IRA or 401(k), so there is not a set amount that you need to take out each year once you hit 72.

It’s always best to talk through your investment strategies with a financial adviser who can look at your entire financial situation and help you to determine the best course of action for your specific needs.


Please note, the information provided on this website is for informational purposes only and investors should determine for themselves whether a particular service or product is suitable for their investment needs. The content on this website is not intended to provide tax, legal or accounting advice, and you are advised to seek out qualified professionals that provide advice on these issues for your individual circumstances.


Financial planning and Investment advisory services offered through Diversified, LLC. Securities offered through Purshe Kaplan Sterling Investments, Member FINRA/SIPC Headquartered at 80 State Street, Albany, NY 12207. Purshe Kaplan Sterling Investments and Diversified, LLC are not affiliated companies.


Diversified, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the SEC. Diversified only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Diversified’s current written disclosure brochure which discusses, among other things, the firm’s business practices, services and fees, is available through the SEC’s website at: Investments in securities involve risk, including the possible loss of principal. The information on this website is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Andrew Rosen, CFP®, CEP
President, Partner and Financial Adviser, Diversified, LLC

In March 2010, Andrew Rosen joined Diversified, bringing with him nine years of financial industry experience.  As a financial planner, Andrew forges lifelong relationships with clients, coaching them through all stages of life. He has obtained his Series 6, 7 and 63, along with property/casualty and health/life insurance licenses.