The Basics of HSA Accounts: What You Need to Know

Preston Rosamond |

Healthcare expenses have been a significant concern for Americans for many years. In a recent survey, over half of U.S. adults (52%) ranked healthcare access and affordability among their top three public health concerns. Even with solid insurance coverage, a sudden medical emergency can quickly drain your emergency savings—leaving you vulnerable at a time when you need financial stability the most.

 

Fortunately, a tax-advantaged health savings account (HSA) can help reduce the financial strain of healthcare costs. At The Rosamond Financial Group, we aim to provide you with a clear understanding of the advantages and potential drawbacks of opening an HSA, so you can make an informed decision on whether it’s the right choice for your financial future.

HSA Benefits

One of the strongest arguments for opening up an HSA is it allows you to lower your federal income taxes by making tax-free deposits into your account. Because tax hasn’t been taken out, you end up with more to contribute. Many people have their HSA money withheld directly from their paycheck so they never even see it or have to pay taxes on it. However, you don’t have to have it automatically withheld—you can just take a deduction when you file your taxes for the same result. Either way (saving now or saving later) you still save on taxes by contributing to an HSA.

 

HSA contributions made through payroll deductions offer an additional tax advantage concerning FICA taxes, which fund Social Security and Medicare. When contributing to your HSA via payroll deductions under a Section 125 cafeteria plan, these contributions are exempt from FICA taxes, providing extra tax savings.

 

Depending on the account, some HSAs also invest the money you contribute in mutual funds,  ETFs, or other stocks. The earnings you make from the HSA are also tax-free as long as you withdraw the funds to pay for medical expenses.

A Retirement Planning Strategy

While many people use their HSA funds to pay for current out-of-pocket medical expenses, you can also maximize your contributions, letting them grow for use in retirement when you’ll likely need them most. HSAs are a great complement to your other retirement savings accounts, allowing your IRAs and 401(k)s to cover regular living expenses. In this way, your HSA acts as a contingency fund earmarked just for health costs. Why wouldn’t you just stick with traditional retirement accounts? Because an HSA receives better tax treatment than any IRA or 401(k), it can be a powerful way to help maximize your nest egg. 

What Do I Need to Get Started With an HSA?

To qualify for an HSA, you must meet the following requirements:

 

  • Be covered under a high-deductible health plan
  • Have no other healthcare coverage
  • Not be enrolled in Medicare
  • Not be claimed as a dependent on someone else’s tax return

 

As of 2025, an individual who has an HSA can contribute up to $4,300 per year and $8,550 for family coverage (up from $4,150 and $8,300 in 2024, respectively). Individuals who are over the age of 55 can make additional catch-up contributions in the amount of $1,000 per year to their HSAs. 

HSA Withdrawals 

You can use the money you deposit in your HSA to pay for medical expenses before you meet your deductible on your HDHP. Such medical expenses include the usual healthcare costs, such as deductibles, copayments, and vision and dental expenses. But you can also use it to pay for non-traditional medical costs, such as acupuncture or chiropractic visits. Additionally, you can use the account to cover medical costs for your immediate family members or spouse even if they are not under your HDHP.

 

One of the most beneficial attributes of HSAs is the funds roll over from year to year, which means these tax-free funds can grow with interest for many years. Once you reach the age of 65, you can withdraw the funds without a penalty and use them on non-medical expenses; however, you will pay income tax on the funds if you use them in this way. If you are enrolled in Medicare, you can use HSA funds to pay for Medicare premiums.

Potential Disadvantages of HSAs

There are many advantages that HSAs offer, but they do not make sense for every family and every situation. 

 

It goes without saying, illness can be unpredictable and, therefore, it can be hard to budget for healthcare expenses. Also, it is worth noting you cannot use HSAs to cover Medigap premiums without paying taxes. 

The Final Takeaway

Setting up a health savings account and making the most of its benefits requires careful consideration. Partnering with an experienced financial advisor helps you understand all the details to guide you to the right decision. 

 

If you're ready to learn more about HSAs and how to make informed choices for both your health and finances, our team at The Rosamond Financial Group is here to assist. Reach out to us today by calling my office at 830-798-9400 or emailing solutions@rosamondfinancialgroup.com.  

About Preston

Preston Rosamond is a financial advisor and the founder of The Rosamond Financial Group Wealth Management, LLC with over two decades of industry experience. He provides comprehensive wealth management and financial services to successful business owners, corporate executives, and affluent retirees who enjoy simplicity and seek a professional to help them pursue their goals. Preston personally serves his clients with an individual touch, a sincere heart, and his servant’s attitude is evident from the moment you meet him. Learn more about Preston or start the conversation about your finances with him by emailing solutions@rosamondfinancialgroup.com or schedule a call on his online calendar.