Health Savings Accounts (HSAs): The incredible financial tool you may be overlooking
When Cassidy was 22, fresh out of college and making $32,000 a year, she knew exactly one thing about her job benefits: HSAs were cool and she should open one if she had the chance.
She didn't fully understand why they were cool. But her gut was right.
Fast forward to today, and we're both obsessed with HSAs — not just as a way to cover medical expenses, but as a secret retirement account that most people completely overlook. Here's the thing: if you have a high deductible healthcare plan, you might be leaving free money on the table.
Let's break down what makes HSAs so ridiculously valuable (and why you should consider opening one if you can).
⏰ Episode Highlights
[3:00] What an HSA actually is (and why the "triple tax advantage" is awesome)
[5:00] How to know if you're eligible for an HSA
[8:00] Contribution limits (and why maxing it out is great but not necessary)
[10:00] The "secret retirement account" strategy and how it works
[15:00] FSAs vs. HSAs
[20:00] How to open an HSA if your employer doesn't offer one
[27:00] When you should actually open an HSA
The Triple Tax Advantage of HSAs
An HSA is a special savings account that lets you save and invest money for qualified medical expenses while earning a triple tax break.
What does that mean?
Your money goes in tax-free. When you contribute to an HSA, you get a tax deduction.
Your money grows tax-free. You can invest that HSA balance (more on this in a second), and you don't pay taxes on any gains.
Your money comes out tax-free. When you withdraw money for qualifying medical expenses, there's zero tax on the withdrawal.
Compare that to a traditional IRA (taxed on the way out) or a Roth IRA (taxed on the way in). An HSA? It's the holy trinity of tax-advantaged accounts.
Money from qualifying medical expenses can cover literally everything from prescription meds and copayments to birth control, menstrual products, band-aids, and even corrective surgery like LASIK. (The IRS has a long list if you want to get granular about it.)
But Wait — Am I Eligible?
Here's the catch: you need a specific type of health insurance to open an HSA.
You need a high deductible health plan (HDHP) — which basically means you pay lower premiums but have a higher deductible. For 2025, the IRS defines an HDHP as:
Self-only coverage: Deductible of at least $1,650 with out-of-pocket max of $8,300
Family coverage: Deductible of at least $3,300 with out-of-pocket max of $16,600
If you have a super comprehensive insurance plan with a $500 deductible, you probably don't have an HDHP. But if you're on a more bare-bones plan? You might be eligible.
Quick check: Search for "HDHP" or "high deductible health plan" in your insurance documents. Or just call your provider and ask.
How Much Can You Contribute?
Just like your 401k and Roth IRA, HSAs have annual contribution limits — because the IRS doesn't want people dumping unlimited tax-advantaged money into accounts.
For 2025, here's what you can contribute:
Individual/self-only plan: $4,300
Family plan: $8,550
While hitting those contribution limits is great, you don't need to do so to make this account worth it. Even contributing a few hundred bucks can be a lifesaver if you need an urgent care visit and don't have cash on hand. It's the difference between affording medical care and putting it off because you don't have a few hundred bucks sitting around.
The Secret Retirement Strategy That Changes Everything
Okay, this is where HSAs go from "nice benefit" to "why isn't everyone doing this?"
If you have enough cash to pay your medical expenses out of pocket, you can treat your HSA like a retirement account and invest the money for the long-term.
You can keep part of your balance in a savings account (for emergencies), but the rest? Invest it in index funds, target date funds, or whatever you'd pick for a Roth IRA. Let it grow for decades.
Then — and this is the beautiful part — you can reimburse yourself for medical expenses whenever you want, even years later.
Here's a real example: You go to the doctor at 30 and pay a $200 bill out of pocket. You keep the receipt. You let your HSA grow for 20+ years. At 52, you cash in that receipt and withdraw $200 tax-free to pay yourself back. You’re basically paying yourself back with money that your money earned.
There's no time limit on those reimbursements. You can literally hold onto a receipt for decades and reimburse yourself whenever.
HSAs vs. FSAs: What's the Difference?
HSAs and FSAs are commonly confused. You've probably heard both terms thrown around, especially toward the end of the year when everyone's panicking about using up their FSA balance.
Here's the key difference: FSAs expire at the end of the year. HSAs don't.
With an FSA, any money you don't spend by December 31st is gone. Poof. That's why people go on spending sprees in December trying to use up their FSA balance.
With an HSA, your money rolls over year after year. It's yours until you use it.
But there's a trade-off: You need an HDHP to open an HSA. FSAs are available to anyone whose employer offers them. So if you have really good insurance and just want a way to set aside money for medical expenses, an FSA might make sense.
How to Open an HSA
If your employer doesn't offer one, don't panic — you can totally open one on your own (as long as you have a qualifying health plan).
Step 1: Pick an HSA provider. Google "best HSA providers" and you'll get a breakdown of some great options. You can also open one through your bank or a brokerage firm you already use.
Step 2: Make an initial deposit. You can link a bank account for automatic contributions, or if your employer offers paycheck deductions, you can arrange to contribute that way.
Step 3: Choose your investments (if you want). Just like setting up a Roth IRA, you'll pick investments — index funds, target date funds, whatever matches your timeline and risk tolerance.
When Should You Open an HSA?
Generally, consider opening an HSA when you:
Can cover all your bills month-to-month — you're not living paycheck to paycheck.
Have extra money to save and invest — there's actual cash left over after expenses.
Have paid off high-interest debt — anything with an ~8% interest rate or higher.
Are getting employer matches — you're contributing enough to get any 401(k) match your employer offers (this is basically free money).
Once those are handled, then consider opening an HSA. And remember, like any financial decision, the best time to open an HSA is personal. Consult a financial advisor for personalized advice.
The Things Nobody Tells You
HSAs are genuinely one of the best-kept secrets in personal finance. The combination of tax advantages, flexibility, and the ability to treat them like a long-term investment account makes them ridiculously powerful.
But here's the caveat: Make sure you actually have enough savings to cover your out-of-pocket maximum. If you're treating your HSA as a retirement account (which we personally do), you need a backup fund for actual medical emergencies. You don't want to be forced to drain your HSA because you got sick and couldn't cover your deductible.
Also? We're not tax pros or financial advisors. If you have specific questions about your situation, check with someone who is.
TL;DR
HSAs offer a triple tax advantage — money goes in tax-free, grows tax-free, and comes out tax-free (for qualifying medical expenses).
You need a high deductible health plan (HDHP) to open one. Check your insurance docs or call your provider to confirm eligibility.
The secret move? Invest your HSA balance and let it grow like a retirement account. Cover medical expenses out of pocket, keep receipts, and reimburse yourself years later with tax-free investment gains.
FSAs sound similar but expire at the end of the year — HSAs don't.
You can open an HSA through a bank or brokerage if your employer doesn't offer one. Fidelity’s HSA is often highly rated.
Don't open an HSA until you've covered your basic expenses, paid off high-interest debt, and maxed out employer matches. But once you've done those things? It's a game-changer.
Questions?
Email us at hello@thefinancegirlies.com if you have follow-up questions about HSAs or want us to dive deeper into anything we covered.
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