5 Mistakes to Avoid With Your Health Savings Account (HSA)
Health Savings Accounts (HSAs) are one of the most powerful financial tools available — yet many people are not using them correctly.
After reviewing client accounts and outside investments, I continue to see costly mistakes that prevent people from maximizing the full potential of their HSA.
Because HSAs are the only triple tax‑free account available, mismanaging them can mean leaving significant money on the table.
Let’s walk through the five biggest mistakes to avoid.
Why HSAs Are So Powerful
If you’re enrolled in a high-deductible health plan (HDHP), you’re likely eligible to contribute to an HSA.
HSAs offer three distinct tax advantages:
Tax-deductible contributions
Tax-deferred growth on investments
Tax-free withdrawals for qualified medical expenses
No 401(k), Traditional IRA, or Roth IRA offers all three benefits at once. That’s why HSAs deserve serious attention in your retirement strategy.
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Mistake #1: Using a Poor HSA Provider
Not all HSA custodians are created equal.
A strong HSA provider should offer:
Low-cost index fund options (expense ratios under 0.10%)
Broad investment choices (stock and bond index funds)
Competitive interest on cash balances
No annual account fees or trading fees
A user-friendly website
Some of the consistently top-rated providers include Fidelity and Charles Schwab, both of which offer low-cost investment options and minimal fees.
If your employer-selected HSA provider lacks good investment options or charges excessive fees, you are not stuck. You can open an HSA elsewhere and complete a tax-free trustee-to-trustee transfer — even while still employed.
Mistake #2: Not Investing the Money
Many people leave their HSA funds sitting in cash earning little or no interest.
At minimum, your short-term balance should be earning competitive money market rates. But for long-term growth, you should consider a two-bucket strategy:
Bucket 1: Short-Term Medical Expenses
Keep enough in cash or a money market fund to cover your annual deductible (for example, $4,000–$6,000).
Bucket 2: Long-Term Growth
Invest the remaining balance in low-cost stock index funds (and possibly some bonds depending on risk tolerance).
Because the real power of an HSA comes from long-term tax-free compounding, investing appropriately is critical.
Mistake #3: Not Maximizing Contributions
If you can afford it, HSAs should often be prioritized — sometimes even ahead of additional 401(k) contributions beyond the employer match.
2025 Contribution Limits
Individual: $4,300
Family: $8,550
Catch-up (age 55+): Additional $1,000 per person
Important notes:
Employer contributions count toward the annual limit.
Contributions do not have to be made through payroll — you can contribute up until the tax filing deadline the following year.
If both spouses are age 55+, each must have their own HSA to make a catch-up contribution.
Because of the triple tax benefit, fully funding an HSA can significantly improve long-term retirement outcomes.
Mistake #4: Treating Your HSA Like a Checking Account
Many people use their HSA as a pass-through account — contributing money and immediately spending it.
While that works, it misses the bigger opportunity.
Instead, consider:
Paying medical expenses out of pocket
Saving and scanning all receipts
Letting your HSA grow tax-free
You can reimburse yourself for qualified medical expenses at any point in the future, as long as the expense occurred after you established your HSA.
This strategy allows decades of tax-free compounding before eventually pulling money out tax-free.
Medicare Considerations
Once you enroll in Medicare (typically at 65), you can no longer contribute to an HSA. Additionally, Medicare Part A is retroactively applied up to six months, meaning you must stop HSA contributions six months before enrolling to avoid penalties.
After age 65:
You can use HSA funds for Medicare Part B and Part D premiums.
You can withdraw funds for non-medical purposes without penalty (though ordinary income tax applies).
At that point, the HSA effectively functions like a traditional IRA if used for non-medical expenses.
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Mistake #5: Not Tracking Expenses and Keeping Receipts
If you plan to delay reimbursement, recordkeeping is essential.
You should:
Keep digital copies of all medical receipts
Maintain a spreadsheet tracking dates and amounts
Store records securely in case of IRS audit
Without documentation, you risk losing the ability to reimburse yourself tax-free.
Keeping organized records allows you to tap into your HSA strategically in retirement — whether to cover Medicare premiums, long-term care expenses, or simply generate tax-free income.
Final Thoughts
HSAs are not just healthcare accounts — they are powerful retirement planning tools.
When used correctly, they can:
Reduce taxes today
Grow tax-free for decades
Provide flexible, tax-efficient income in retirement
Avoid these five mistakes, and your HSA can become one of the most valuable accounts in your financial plan.
If you don’t yet have a coordinated retirement strategy that integrates HSAs, Social Security, Medicare, investments, and tax planning, now is the time to build one.