How HSAs Can Be a Triple-Tax Win

Among the many tools available to high-income individuals, Health Savings Accounts (HSAs) are often underutilized. They can serve as both a short-term benefit and a long-term strategic asset.

Understanding the Triple-Tax Advantage

HSAs are unique in that they offer a triple tax benefit:

• Contributions are tax-deductible.
• Earnings grow tax-free.
• Withdrawals for qualified healthcare expenses are also tax-free.

This trifecta makes HSAs arguably more tax-efficient than even traditional or Roth retirement accounts—if used strategically.

Eligibility and Contribution Limits

To contribute to an HSA, you must be enrolled in a high-deductible health plan (HDHP). For 2025, the contribution limits are $4,300 for individuals and $8,550 for families, with a $1,000 catch-up contribution allowed for those age 55 and older.

If you’re currently using an HDHP and not maximizing your HSA, you may be missing out on a powerful retirement tool.

It is important to note that if your HSA is used for non-medical expenses, you will be subjected to a 20% penalty in addition to paying ordinary income tax on the withdrawal.  After 65, while you would still owe ordinary income tax, there is no 20% penalty applied to non-qualified expenses.

Using HSAs for Long-Term Wealth

Many people mistakenly use HSAs to cover current-year medical costs. While that’s an option, a better strategy is to pay out-of-pocket and allow the HSA funds to grow tax-free over decades.

Investing HSA funds in mutual funds or ETFs can generate substantial long-term growth. Receipts from past medical expenses can be used at any time to justify tax-free withdrawals—creating a highly flexible financial reservoir.

Planning for Retirement Healthcare Costs

Healthcare expenses are one of the largest unknowns in retirement planning. By building a sizable HSA balance, you create a dedicated bucket of tax-free funds to handle costs like Medicare premiums, prescriptions, and out-of-pocket treatments.

Unlike FSAs, HSAs are not “use it or lose it” accounts. Funds roll over annually and are yours to keep—even if you change jobs or retire.

Estate Considerations

HSAs aren’t ideal estate transfer tools, as non-spouse heirs must treat the entire account as taxable income. However, married couples can name each other as beneficiaries to retain the tax benefits.

To optimize estate outcomes, it’s best to use HSA funds during your lifetime, particularly in retirement when healthcare costs tend to spike.

Conclusion

For anyone aiming to maximize every tax-advantaged dollar, HSAs deserve a place in the portfolio. When used strategically, they offer unmatched tax benefits and a powerful hedge against rising healthcare costs in retirement.

Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC. Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. Advisory services offered through Sanctuary Advisors, LLC., a SEC Registered Investment Advisor. Tenet Wealth Partners is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.

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