Health Savings Accounts: Benefits Beyond Paying for Medical Expenses

Are you maximizing your HSA? Unlock retirement and tax benefits amid OBBBA changes

As healthcare costs continue to rise, many individuals and employers are looking for ways to manage expenses while also creating financial flexibility. One powerful tool, often underutilized, is the Health Savings Account (HSA).

An HSA is a tax-advantaged savings account available to individuals enrolled in a High-Deductible Health Plan (HDHP). These accounts were introduced as part of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 to help individuals cover higher out-of-pocket medical costs associated with HDHPs.

HSAs have become extremely popular since their inception, with some studies showing that as of 2024 there were as many as 59 million HSA accounts in existence.

Key features of an HSA

• Triple tax advantage: Contributions are tax-deductible, growth is tax-deferred, and withdrawals are tax-free when used for qualifying medical expenses.
• Portability: The account belongs to the individual and remains with the account holder regardless of job changes or retirement. The individual may receive contributions to the account from their employer, but the employer doesn’t retain control of how these accounts are invested or distributed.
• Contribution limits:
  •  2025: $4,300 for individuals and $8,550 for families, with a $1,000 catch-up contribution allowed for those aged 55 and over.
  • 2026: $4,400 for individuals and $8,750 for families, with a $1,000 catch-up contribution allowed for those aged 55 and over.
• Rollover potential: Unused funds roll over year to year and can be invested for long-term growth. There is no “use it or lose it” consideration for HSAs.

HSA eligibility requirements

To contribute to an HSA, individuals must:

• Be enrolled in a qualified HDHP that meets IRS requirements.
• Not be enrolled in Medicare or covered by any other Non-HDHP insurance coverage.
• Not be claimed as a dependent on someone else’s tax return.

HSAs must be held with a qualified custodian, such as a bank or financial institution approved by the IRS.

How the OBBBA expanded HSA flexibility

The Department of the Treasury and the Internal Revenue Service issued Notice 2026-05 providing guidance on new tax benefits for Health Savings Account participants under H.R.1 (formerly, the One, Big, Beautiful Bill Act). These changes expand HSA eligibility, which allows more people to save and to pay for healthcare costs through tax-free HSAs.

• Telehealth and Remote Care Services: The OBBBA made permanent the ability to receive telehealth and other remote care services before meeting the high-deductible health plan (HDHP) deductible while remaining eligible to contribute to an HSA, effective for plan years beginning on or after January 1, 2025.

• Bronze and Catastrophic Plans Treated as HDHPs: As of January 1, 2026, bronze and catastrophic plans available through an Exchange are considered HSA-compatible, regardless of whether the plans satisfy the general definition of an HDHP. This expands the ability of people enrolled in these plans to contribute to HSAs, which they generally have not been able to do in the past. Notice 2026-05 clarifies that bronze and catastrophic plans do not have to be purchased through an Exchange to qualify for the new relief.
• Direct Primary Care Service Arrangements: Beginning January 1, 2026, an otherwise eligible individual enrolled in certain direct primary care (DPC) service arrangements may contribute to an HSA. In addition, they may use their HSA funds tax-free to pay periodic DPC fees.

Strategic use of HSAs for retirement planning

While many individuals use HSAs to pay for current medical expenses, there may be significant long-term after-tax benefits available by leaving funds in the account to grow tax-free for future use.

To maximize benefits available to HSAs, potential strategies include:

• Pay current expenses out-of-pocket, if possible, to allow HSA funds to grow. Retain receipts and track spending on qualifying medical expenses so you may withdraw funds in the future.
• Invest HSA contributions in mutual funds or other available investment options offered by your HSA custodian.
• Designate a spouse as your beneficiary to preserve the account’s tax-advantaged status after death. Funds in these accounts left to non-spouse beneficiaries are generally subject to income taxes at your passing.

After age 65, HSA funds can also be used for non-medical expenses without incurring a penalty (though they will be subject to income tax, similar to a traditional IRA). When used for qualified medical expenses, however, distributions remain completely tax-free, even in retirement. Record-keeping is important to support qualifying medical expense withdrawals after the account has had many years to compound tax-free if you decide to pay current expenses out-of-pocket.

Take advantage of the opportunity

The expanded definition of qualified expenses under the OBBBA, coupled with the triple tax benefit and long-term savings potential, make the HSA a valuable addition to your overall financial strategy.

Have questions about how an HSA fits into your retirement or tax planning strategy?
There are few tax deferred saving vehicles that remain in the tax code, so don’t let the HSA benefits go under-utilized. Questions on taking advantage of your HSA? Contact your Opportunity Advisor. We are here to help.