For many high-income earners, investing money wisely is a priority. No investment can be wiser than one that leads to both tax-free growth and tax deductibility. These are the benefits offered by a Health Savings Account, also known as an HSA.
What is an HSA?
An HSA, or Health Savings Account, is a tax-exempt savings account set up to pay for or reimburse certain qualified medical, dental and vision expenses incurred by the account owner, their spouse, or dependents.
An HSA must be set up with a trustee – most often a bank, insurance company, or other 3rd party approved by the IRS. It can be set up independently by an individual, regardless of their employer.
An HSA can be funded by either the account owner or any other person, such as an employer or family member.
Contributions made by an individual to an HSA are tax deductible on the owner’s individual income tax return, and employer contributions are not counted as income.
Qualified medical purchases and distributions made using a Health Savings Account are not taxed.
Interest and investment growth within an HSA, if spent on qualified medical purchases, is also tax-exempt.
Because the funds in an HSA are tax-deductible, qualified purchases are tax-exempt, and growth within an HSA is also tax-exempt, we often call this a triple tax-advantaged account.
Who is eligible for an HSA?
Not everyone can set up and fund an HSA – you must meet strict requirements.
An HSA is only available to individuals with an HSA-eligible, high-deductible health plan (HDHP). An HDHP is defined by the IRS as a health plan with a higher annual deductible than typical health plans, and a plan that has a maximum limit on the sum of annual deductible and out -of- pocket expenses that the taxpayer is responsible for.
Additionally, an eligible individual must be:
- Not covered by any other health insurance plan
- Not enrolled in Medicare
- Not eligible to be claimed as a dependent
- If married, each spouse must have their own HSA, though distributions can be used to cover the qualified expenses of either spouse, as well as the qualified expenses of dependents
Unlike with a Roth IRA, there are no income limits regarding HSA contributions – any high-income earner meeting the above qualifications can open an account, contribute the maximum allowable amount, and enjoy the tax benefits.
How much can be contributed annually to an HSA?
Just as with traditional retirement accounts, there are annual limits on how much can be contributed to an HSA.
In 2025, individuals with self-only coverage can contribute up to $4,300 for the year, and the amount increases to $8,550 for those with family coverage. Individuals aged 55 and older can make additional catch-up contributions of up to $1,000, according to IRS guidelines.
The funds in an HSA can be spent on an ongoing basis to pay for eligible medical expenses or can be saved and invested within the account to grow over time.
What can an HSA be used for?
An HSA can be used for any qualified or eligible medical expense, as defined by the IRS in Pub. 502, Medical and Dental Expenses.
The term “qualified expense” covers a very wide range of expenses, including:
- the purchase and training of a service animal
- eyeglasses
- hearing aids
- hospital services
- lab fees
- dental work
- medications
- copayments
- and even meals at hospitals and medical facilities
An HSA can also cover long-term care services, nursing services, the cost of a wheelchair, and many other purchases.
An HSA usually cannot be used for cosmetic procedures (including teeth whitening), surrogacy (as the surrogate is an unrelated party, i.e. not the owner of the account, a spouse or a dependent), or funeral expenses. There are also various other exclusions.
We recommend that every owner of an HSA familiarize themselves with IRS Pub. 502, Medical and Dental Expenses, in order to remain compliant.
Use of an HSA in retirement and for long-term care
Funds in an HSA can be spent on an ongoing basis to cover annual qualified medical expenses.
However, many high-income earners do not spend their funds, and instead let their contributions accumulate year after year, invest the funds, and enjoy account growth over dozens of years.
Once an individual reaches the age of 65, their HSA funds can prove to be a useful supplement to other retirement vehicles.
- An HSA can be used to cover qualified medical expenses, which typically increase with age.
- An HSA can be used to cover qualified long-term care expenses and services, including premiums for long-term care insurance.
- An HSA can be used for non-qualified expenses and distributions – though these purchases and distributions will be subject to federal and state taxes, just like distributions from a 401(k).
Let’s break down why your HSA should be part of your retirement strategy, and how to make the most of it.
What tax benefits can an HSA offer to high-income earners?
As mentioned above, an HSA is considered to be a triple tax- advantaged account.
- Contributions to an HSA are tax -deductible
- Growth from interest and investments is tax- deferred, and completely tax- free if funds are spent on qualified medical expenses
- Qualified purchases and reimbursements are also tax- free
If focusing solely on the tax deductibility of funds, qualified high-income earners in the highest tax bracket can expect the following tax benefits from a maximum 2025 HSA contribution:
- For single individuals in the 37% tax bracket making a maximum ($4,300) contribution in 2025: $4,300 x 37% = $1,591 annual tax savings
- For married couples in the 37% tax bracket contributing the maximum ($8,550) to family plans: $8,550 x 37% = $3,164 annual tax savings
| Filing Status | 2025 HSA Contribution | Tax Bracket | Estimated Tax Savings |
| Single Individual | $4,300 | 37% | $1,591 |
| Married Couple | $8,550 | 37% | $3,164 |
Additionally, individuals aged 55 or older can contribute an extra $1,000, which would result in an additional $370 in tax savings.
Some states also allow a state tax benefit.
Individuals who do not use HSA contributions and allow money to be invested and interest to accumulate, and spend the funds on qualified medical and dental expenses in retirement, will, of course, be able to save much, much more on taxes.
How is an HSA different from an FSA?
Some high-income earners may have access to both an HSA and an FSA (Flexible Savings Account). The IRS prohibits you from contributing to both an HSA and a traditional health FSA in the same year, which is why it’s important to know the pros and cons of each type of account.
While any eligible individual can set up a Health Savings Account, an FSA is employer-sponsored, meaning that an employer must offer this type of account.
An HSA will require an HDHP (High Deductible Health Plan), while access to an FSA does not depend on the type of healthcare plan or provider used.
Other key differences include:
- Funds inside an HSA rollover to future years. While unused funds in an FSA generally expire at the end of the year, funds in an HSA can be rolled over to future years, allowing you to accumulate and invest them, and earn interest on the funds.
- HSAs generally have higher contribution limits. An employee who chooses to participate in an FSA can contribute up to $3,300 through payroll deductions during the 2025 plan year. This is in contrast to a max contribution of $4,300 to HSAs for single taxpayers.
- Funds in an HSA can be invested. Due to the nature of HSA accounts (funds rolling over to future years), it is possible to invest funds in a variety of investment options, including stocks, bonds and mutual funds.
- Since having an HSA does not depend on an employer, funds are portable and can be carried from one job to another. Whether you switch jobs, become an independent contractor, or decide to open a business, your HSA account is “portable”, meaning you can fund it independently of your place of employment, as long as you still meet all other qualifications.
- HSAs have more tax benefits than FSAs. Both types of accounts allow for tax-free contributions (in the case of an FSA, funds are deducted from your salary before federal income tax, Social Security, and Medicare taxes are applied). Both types of accounts also allow for qualified tax-free purchases. However, only an HSA allows for tax-deferred or tax-free growth from interest and investments.
| Feature | HSA (Health Savings Account) | FSA (Flexible Spending Account) |
| Eligibility | Must be enrolled in a High Deductible Health Plan (HDHP) | Offered by employer, no HDHP required |
| Ownership | Owned by the individual; portable between jobs | Owned by the employer; not portable |
| Contribution Limit (2025) | $4,300 (individual); $8,550 (family) | $3,300 (employee max) |
| Rollover | Yes, funds roll over year to year | Generally no, use-it-or-lose-it (some plans allow a grace period) |
| Investing | Can invest in stocks, bonds, and mutual funds | Cannot be invested |
| Tax Benefits | Triple tax advantage: pre-tax contributions, tax-free growth, and tax-free withdrawals for qualified expenses | Pre-tax contributions and tax-free withdrawals for qualified expenses |
| Long-Term Use | Can be used in retirement, for long-term care, and non-medical expenses after age 65 | Intended for short-term medical expenses within the plan year |
“If you’re looking for long-term growth and flexibility, an HSA is the clear winner, especially for high-income earners planning for retirement.”
Why your HSA deserves a bigger role in your retirement plan
High-income individuals who set up an HSA can enjoy tax deductions, allow funds within the account to be invested, and accumulate interest. As long as funds are spent on qualified medical and dental purchases, this growth is tax-free.
Unlike an FSA, money within an HSA rolls over to future years and can be used as another source of funds during retirement or earmarked for long-term care.
Ratio CPA works with high-income earners (W-2 wage earners, those receiving a 1099 or K-1, as well as business owners) to help reduce tax liability.
While an HSA is just a small piece of the puzzle, when added to other tax reduction strategies, it can help lower your tax liability today and help maintain your current lifestyle upon retirement.
Want to make the most of your HSA, and uncover other overlooked tax strategies?
Book a free, no-pressure Zoom call with our Tax Reduction Adviser. You’ll walk away with clarity on how to use tax-advantaged accounts to save more, invest smarter, and plan for retirement with confidence.
This isn’t a sales pitch. I—it’s your chance to get expert insight tailored to high-income earners like you.
