HSAs: The Triple-Tax Tool You Might Be Overlooking
By: Nazzareno Spurio, CFP®
Download a PDF file of the article here.
Have you ever thought, “I really don’t understand how my health insurance works”? If so, you’re far from alone. Surveys show about 56% of Americans admit they don’t fully understand their health plan — and roughly 1 in 4 can’t define a deductible. And honestly, who can blame them?
This article won’t solve America’s healthcare puzzle (if it did, I’d already be retired on the beach), but it will help you understand one of the most powerful — and misunderstood — tools in the health insurance world: the Health Savings Account, or HSA.
The Triple-Tax Advantage
If you’re eligible, HSAs are like the Swiss Army knife of personal finance — versatile, efficient, and built for long-term benefit. The “triple-tax advantage” makes them unique:
Pre-Tax Contributions – Every dollar you put in reduces your taxable income for the year. For 2025, you can contribute up to $4,300 if single or $8,550 for families, plus a $1,000 catch-up if you’re 55 or older.
Tax-Free Growth – Invest your HSA funds in mutual funds or ETFs, and your earnings grow without Uncle Sam taking a cut.
Tax-Free Withdrawals – Use the money for qualified medical expenses and you’ll never pay taxes on it. Ever.
Here’s where it gets even better: you can pay medical bills out of pocket now, save the receipts, and reimburse yourself years — even decades — later. This lets your HSA stay invested and growing tax-free in the meantime.
Let’s say you have a $1,000 out of pocket medical expense. If you let that $1,000 stay invested for 20 years at 7% annual growth, and you could then reimburse yourself the $1,000 from an account with a $3,900 tax-free balance.
The Catch
HSAs aren’t a fit for everyone.
To contribute, you must be enrolled in a high-deductible health plan (HDHP) — which for 2025 means at least a $1,650 deductible for individuals or $3,300 for families.
Premiums are often lower, but you’ll pay more out-of-pocket before insurance kicks in. If you have a chronic condition, frequent doctor visits, or kids who seem to treat the pediatrician’s office like a second home (as a father of two, I get it), those upfront costs can add up quickly.
Other Limitations
You can’t contribute once you’re on Medicare.
If you use HSA funds for non-medical expenses before 65, and you’ll pay both income tax and a 20% penalty. After 65, non-medical withdrawals are taxed like a traditional IRA — no penalty, but no tax-free perk either.
Who do these vehicles suit?
Healthy, higher-income individuals who can afford to cover higher deductibles without tapping into the HSA.
Long-term planners who view the HSA as a stealth retirement account for future medical costs — which for a 65-year-old couple average over $315,000 in today’s dollars over retirement, according to Fidelity.
Investors who want another tax-advantaged bucket beyond IRAs and 401(k)s.
Bottom Line
An HSA can be a tax-efficient powerhouse — if the high-deductible plan that comes with it fits your financial and medical reality. The triple-tax advantage is compelling, but for some people it is not worth the financial stress from unmanageable out-of-pocket costs.
If you’re wondering whether your current plan and HSA strategy are the right match, my team and I can walk you through the numbers and help you build a plan that balances today’s needs with tomorrow’s opportunities.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Securities and investment advisory services offered through LPL Enterprise (LPLE), a Registered Investment Advisor, Member FINRA/SIPC, and an affiliate of LPL Financial. LPLE and LPL Financial are not affiliated with Pillar Wealth Partners.
