HSA: The Triple-Tax-Free Way to Save for Healthcare Expenses

Jay D. Franklin, CFA, CFP, FSA | Clarity Capital Advisors |


For those who have a high deductible health insurance plan  ($1,350 for individual or $2,700 for family in 2019), there is an excellent way to save for future health-related expenses. It is called the Health Savings Account (HSA).

For 2019, the contribution limits are $3,500 for individuals and $7,000 for families. Those age 55 or older may contribute an additional $1,000. The best part is that the contributions are tax-deductible, grow tax-deferred, and are not taxed upon withdrawal for legitimate health care expenses. Allowable expenses include Medicare premiums, nursing home, home health care, vision, dental, and many others. Unlike Flexible Spending Accounts, HSAs have no use-it-or-lose-it feature. 

Non-qualified withdrawals are fully taxable and subject to an additional 20% penalty if made prior to age 65. Another way to think about this is if non-qualified withdrawals are made after age 65, then the HSA will have functioned similarly to a traditional IRA.

The HSA is one of the only savings vehicles to offer the triple tax benefit described above. Furthermore, an HSA has total flexibility regarding how it can be invested. Unfortunately, most HSAs hold only cash. To take advantage of an HSA, it is not necessary that your employer offer it. As long as you are covered by a high deductible health plan, you can open one through any bank that offers it. One provider worth checking out is Lively (livelyme.com). In addition to FDIC-insured accounts, they offer a full range of investments on the TD Ameritrade platform. For individuals, there is currently no monthly or annual fee.

If you would like to learn more about opening or investing in an HSA, please email us at advisors@clarityca.com.