Clients seem to get a good laugh when I tell them that at least once a month my wife and I argue about not spending money in our Health Savings Account (HSA) account.  “Health Care…Isn’t that what this is for?”  Yes, just not right now.  Aside from a medical emergency (or global pandemic) if you have a High Deductible Health Care plan, HSA funds are some of the most tax efficient available since they are deposited pre-tax, grow tax free, and are withdrawn tax free if used for qualified medical expenses.

I hope that everyone reading this lives a long time in retirement. If that is the case, consider that living longer means an increase in health-related expenses. Expenses like medication, ongoing preventative care, co-pays for doctors’ visits, and elective surgeries.  There is even a possibility that we might need some type of extended care.  How do you want to pay those bills? With A) money you are taxed on, or B) money you never pay taxes on?  HINT: The answer is always B.

So…What is an HSA and why should I care?  A Health Savings Account (HSA) allows you to save money on a pre-tax basis to pay for qualified medical expense.  These plans allow you to accumulate this pre-tax money in a tax-deferred environment (like your 401k). However, provided you use these funds for qualified medical expenses, they are withdrawn tax-free!

How it works:

Money In – Weather your employer makes a matching contribution, or you fund this fully yourself, money goes into the plan pre-tax, reducing your taxable income.  This is especially helpful to high income earners as there are no income phases outs, and these contributions are on top of any retirement plan deferrals.

Money out? – When you have a qualified medical expense, you can use your HSA to pay for it.  Many plans even have a debit type card that you can use right at the pharmacy or doctor’s office.

Money not spent – If you can pay medical expenses from another source, what you do not use from your HSA each year, you keep.  Even if you leave your current job, you can save and invest the balance for the future… when you will likely have even higher medical expenses.

For 2021, the annual limit on deductible contributions is $3,600 for individuals with self-only coverage under a High Deductible Health Plan and $7,200 for family coverage.


2021 HSA

Contribution Limit

Catch-up contribution ages 55+
Individual $3,600 $1,000
Family $7,200 $1,000


What is the expected cost of healthcare?  According to the Fidelity Retiree Health Care Cost Estimate, to cover health care expenses in retirement an average retired couple age 65 in 2020 needed approximately $295,000 saved after taxes (the pre-tax equivalent is $388,158 at a 24% effective tax rate).  So, for those with the ability to let the HSA accumulate, it is a good long-term decision with significant tax advantages.

Now, is it acceptable to reference my own article to prove to my wife that I am right?

Learn more:

Michael P Green is a Certified Financial Planning Professional™ and Wealth Management Advisor with Apollon Wealth Management, an Independent Registered Investment Advisory Firm with offices in Charleston and Mt. Pleasant. He earned his B.A. from the University at Albany and M.B.A. from the Sage Graduate School, in Albany, NY. In addition to being a Certified Financial Planning Professional™ (CFP®); Michael holds the Certified in Long Term Care (CLTC®), Chartered Life Underwriter (CLU®), Chartered Financial Consultant (ChFC®), and Retirement Income Certified Professional (RICP®) designations.

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