3 Mistakes You’re Probably Making With Your HSA Account

If you're not already taking full advantage of your Health Savings Account (HSA), you're missing out on one of the most powerful tools for saving for retirement. In fact, there are three key mistakes I see people making with their HSAs that could be costing them a lot of money.

1. Not Investing Your HSA Money

This is one of the most common mistakes I see. Many people use their HSA as just another savings account, but that's a missed opportunity. Your HSA is much more than just a way to pay for medical expenses—it's a retirement savings vehicle in disguise. If you’re not investing your HSA funds, you’re leaving a lot of potential growth on the table.

Most people, when they get an HSA, are automatically enrolled in a basic savings account, and that means your money is likely earning little to no interest. At the very least, you should consider moving your HSA balance into a money market fund. Right now, many money market funds are paying close to 4% interest, and this can significantly boost your HSA’s growth. If your current HSA provider doesn’t offer a competitive money market fund, consider transferring your HSA to providers like Fidelity, Charles Schwab, or Vanguard, where you can access higher-yielding options.

Beyond that, think about bucketizing your HSA balance. If you’ve built up a significant amount—say $20,000—you likely don’t need to tap into all of it right away. Reserve one portion of it for immediate healthcare expenses (such as your deductible or out-of-pocket maximum), and keep that in a low-risk option like a money market fund. For the rest of your HSA balance, consider investing it in stock index funds or mutual funds. Over time, you’ll get the benefit of long-term growth and compound interest.

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2. Not Contributing the Maximum Amount to Your HSA

In 2023, the contribution limits for an HSA are $4,300 for an individual and $8,550 for a family. If you have access to an HSA and aren’t contributing the maximum amount, you’re missing out on an incredible tax advantage. Remember, contributions to an HSA are tax-deductible, the money grows tax-deferred, and withdrawals for qualified medical expenses are tax-free. That makes the HSA a triple-tax-free account—one of the best deals in personal finance.

If you’re not already contributing the max, make sure to set up payroll deductions with your employer. And, don’t worry if you miss the contribution deadline. You have until Tax Day (typically April 15th or 18th, depending on the year) to make contributions for the previous tax year. Even if you don’t contribute through payroll deductions, you can always make a one-time contribution through other HSA providers.

Additionally, if you’re over 55, you can make a catch-up contribution of $1,000, bringing your max contributions to $5,300 for individuals or $9,550 for families. If your spouse is also eligible for an HSA and is over 55, they can also contribute the $1,000 catch-up, allowing your household to contribute even more.

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3. Treating Your HSA Like a Credit Card

This is probably the biggest mistake I see people make: treating their HSA as a "pay-as-you-go" expense account instead of a long-term investment vehicle. It’s easy to swipe your HSA card every time you go to the doctor or pharmacy, but this is the wrong approach if you’re serious about maximizing your savings.

Instead, treat your HSA like a retirement account. Here’s how: when you have out-of-pocket medical expenses, pay for them out of your pocket—not your HSA. Use your credit card or checking account to pay for those expenses, and then save the receipts. Once your HSA has had time to grow (maybe 5-10 years down the road), you can reimburse yourself from your HSA for those past expenses tax-free.

The key here is letting your HSA money grow. The longer you leave it invested, the more compound interest you’ll earn. By the time you take the money out to reimburse yourself, it’s likely that you’re not just spending your contributions, but rather the gains your HSA has generated. This is how you can make your HSA work for you and build a retirement nest egg that can be used for healthcare costs in the future.

You’ll need to keep track of your receipts and expenses over the years. For example, I use an Excel sheet to log any medical bills that qualify for HSA reimbursement. This way, when the time comes to take money out of the HSA, I can make sure everything is in order for tax purposes.

If you find that your HSA balance grows beyond your medical expenses, you have options. After age 65, you can withdraw money from your HSA for non-medical purposes, just like a traditional retirement account—but note that it will be taxed. Still, it’s an extra benefit that makes your HSA a flexible savings tool.

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In conclusion, the HSA is a powerful tool that can help you not only with current medical expenses, but also with long-term retirement savings. By avoiding these three mistakes—not investing your HSA money, not contributing the maximum, and treating it like a credit card—you can unlock its full potential and make it one of the best retirement savings accounts out there.

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As always, have a great day, a better week, and I look forward to talking with you on the next blog post, podcast, YouTube video, or wherever we have the pleasure of connecting!

Written by Ryan Morrissey

Founder & CEO of Morrissey Wealth Management

Host of the Retire with Ryan Podcast