Can You Contribute to an HSA? – The Triple Threat of Retirement Saving Accounts

Can You Contribute to an HSA? – The Triple Threat of Retirement Saving Accounts

In show business, few can claim that they are the much-sought-after triple threat. While many can sing and dance, or act and sing, few stars can sing, dance, and act exceptionally well.

In the retirement savings world, many different accounts offer tax benefits. But just like many stars who fall short in one or another performance area, these accounts only offer two of the three tax-preferred benefits. For instance, a Roth IRA allows invested money to grow tax-deferred and be withdrawn tax-free but does not allow a tax deduction for contributions. Meanwhile, a 401(k) plan or traditional IRA allows a tax deduction for contributions and grows tax-deferred but the money gets taxed upon withdrawal.

When it comes to tax-preferred savings, there is one account that can “sing, dance, and act.” This ever-elusive triple threat of the retirement savings world is none other than the Health Savings Account (HSA). This is the only current savings vehicle that offers a tax deduction for contributions, tax-deferred growth, and tax-free withdrawals for qualified distributions (all three tax benefits!). The question is: Are you eligible to contribute to an HSA, which is beloved by so many financial planners? In this post we will explore how HSAs work and the eligibility requirements for contributing to one.

Who can contribute to an HSA?

Before we dive into the incredible tax benefits and uses of an HSA, we first need to address who is eligible to contribute. There are four main requirements from the IRS:1

  1. You are covered under a high-deductible health plan (HDHP) on the first day of the month.
  2. You have no other health coverage except what is permitted under your current health plan.
  3. You are not enrolled in Medicare.
  4. You cannot be claimed as a dependent on someone else’s tax return.

What is considered an HDHP?

There is much confusion about what is considered an HDHP. For 2024, they are plans with a minimum deductible of $1,600 for an individual or $3,200 for a family and maximum out-of-pocket spending of up to $8,050 for an individual or $16,100 for a family (for in-network coverage).2

While the deductible may be higher than other plans, it does not necessarily mean that you will have to pay everything out of pocket before you get some benefits from your insurance. The HDHP can cover some preventive care procedures without disqualifying it for HSA contribution purposes. Things like routine exams, some screening services (for cancer, heart and vascular diseases, etc.), and some mental health conditions are allowable. A full list of eligible screening services can be found here on the IRS’s website.

It’s important to reiterate that the deductible and out-of-pocket thresholds apply only to in-network care. Many health insurance policies differentiate between in-network care with some doctors and hospitals where they have negotiated a relationship and out-of-network care with doctors and hospitals they have not. Out-of-network care generally has higher deductibles and out-of-pocket maximums, if it’s even covered at all!

This can also get a little tricky when it comes to family plans. Family plans typically have two deductible amounts, one for each individual covered by the plan and one for the entire family. The individual and family deductibles must be at least the minimum family plan deductible ($3,200 for 2024) to qualify. As an example, if a family plan had a $2,000 deductible per individual and a total deductible of $3,500, the plan would not qualify because the individual deductible is less than the minimum family plan deductible of $3,200.

What about other health coverage?

Generally, if you’re covered by an HDHP you aren’t allowed to carry any other form of health insurance. There are, however, exceptions for the following additional coverages:1

  • Disability
  • Vision
  • Dental
  • Long-term care
  • Accidents

If you and your spouse are covered under your own health plans, there is a chance one of you qualifies while the other does not, depending on if they are HDHP’s or not. Also, if you are covered by a Flexible Savings Account or Health Reimbursement Account and have an HDHP, depending on what is covered, you may not be able to contribute to an HSA.

How do you know for sure whether you’re eligible?

These rules can get quite complex and convoluted. By far the easiest way to know whether you’re eligible is to simply ask your insurance company. Many insurance companies deliberately design plans to be HSA-eligible or not and include the word “HSA” or “Saver” in the name of the plan. If you’re unsure, just ask, and the representative should be able to give you a clear answer. Just because your plan has a high deductible does not mean it will qualify as an HSA-eligible plan. It is very important not to contribute to an HSA unless you qualify, as this can come with hefty penalties otherwise.

How does an HSA work?

Now that we’ve gone over much of the qualification guidelines, we can dive into the exciting stuff: How exactly do HSAs work? There are a few steps to the process.

  1. If you’re eligible, the first step is contributing to an HSA. Most of the time this is done through a payroll deduction, similar to how a 401(k) contribution or taxes are automatically withheld from your paycheck. And just like a 401(k) contribution, the money set aside in an HSA is not yet taxed or reported as earnings for tax purposes. Therefore, if you’re in the 24% tax bracket and make a $1,000 contribution to your HSA, you just saved $240 on your taxes right off the bat!
  1. The immediate tax savings are nice, but the “fun” (for financial advisors at least) doesn’t end there. Now that you have some money in your HSA, you have options as to what to do with it. Contributions go in as cash, just like in your checking account; however, most HSAs give you an option to invest some of or all the money. Investing the funds in these accounts into individual stocks, mutual funds, or exchange-traded funds allows for tax-deferred growth — any income earned in the form of interest, dividends, or capital gains (selling an investment for a profit) is not taxable to you while it is in the HSA.
  1. While it’s all well and good to save, what’s the point if you never use it? Like most retirement savings accounts, there are restrictions on when you can use the money in your HSA without incurring a penalty. Any money you withdraw for a qualified health expense is tax-free. However, it’s important to note that if you withdraw money for a nonqualified expense, it is subject to income taxes and an additional 20% penalty. Assuming, again, you’re in the 24% tax bracket and withdraw $1,000 for a nonqualified expense, $240 would be owed for income taxes and $200 would be owed for the penalty ($440 total) — a steep price to pay for not using the funds for a qualified expense.

What are qualified HSA expenses?

Qualified expenses paid for you, your spouse, or any of your dependents (typically children) range from prescription drugs to acupuncture and even guide dogs! Most usual and routine medical costs will be eligible to be paid from an HSA. For a full list of qualified expenses, read IRS Publication 502.

What about distributions in retirement?

The primary goal of using HSA funds is for medical expenses. However, something interesting happens when you turn 65. After age 65, you can withdraw money from your HSA for any reason without incurring the 20% penalty. You would still owe income taxes on distributions because the money wasn’t used for medical expenses, but this is a good option for those who have stellar health insurance in retirement and are not expected to use all the money in their HSA for medical expenses.

How much can you contribute to an HSA?

If we financial planners had it our way, we would not impose any limits on HSA contributions because of the incredible triple-tax benefits. However, like most things in life, that would be too good to be true. Like other retirement savings plans, the IRS imposes contribution limits on HSAs as well. For 2024, the limits are $4,150 for individuals and $8,300 for families, a small increase from the $3,850 and $7,750 limits for 2023.

Another benefit is that those who are 55 and older (not 50, like with other retirement plans!) can make an additional contribution of $1,000 to their HSA (this is referred to as a catch-up contribution). If both spouses are over 55 and covered under an HSA-eligible HDHP, they each can make an additional $1,000 contribution. Since HSAs are opened in an individual’s name, if both spouses are over age 55 and covered by a family plan, the spouse who owns the plan would be able to make an $8,300 contribution (maximum family plan contribution) to their HSA, plus $1000 catch up contribution and the other spouse over 55 could contribute $1,000 to their own HSA.

If you didn’t max out your 2023 contributions but want to because you now know of the awesome tax benefits, you’re in luck! Just like with IRAs, you can make your 2023 contribution before the tax filing deadline of April 15.

If you started your HSA-eligible health plan midyear, no worries! You can still contribute the full amount if you were covered on December 1.

Once you enroll in Medicare, you are no longer eligible to contribute to your HSA but can continue to use the account.


We hope you now know why HSAs have financial advisors singing and dancing (and acting!) about their awesome tax benefits. While there are many tax-preferred savings tools out there, there is currently only one with a triple-tax benefit. If you’re eligible to contribute to an HSA and aren’t currently maxing it out, you likely should start doing so.

If you have any other questions about HSAs and their workings or need assistance with your tax or retirement planning in general, please reach out to our team.



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