What Is An HSA & Why Your Family Needs One

October 24, 2021

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When I started my new job in 2013, I immediately signed up for the company 401k program and maxed that baby out. CHECK!   

For the last two years, my wife and I have both maxed out the contributions on our Roth IRAs. DOUBLE CHECK! 

We’re hopeful that this diligent tax-favored savings plan of ours will pay dividends (literally and figuratively). Our overall balances have been growing steadily and we’re in it for the long run.  

But … Now what?

We could always open a taxable brokerage account or look into real estate investing. Those options are definitely on the table, but there has to be another tax-advantaged lever that we haven’t pulled yet.

In true “seek and ye shall find” fashion, I stumbled upon another tax-favored option I hadn’t been taking advantage of … The Health Savings Account (HSA).

Before I made the plunge in signing up, I had to ask “What is an HSA?” After some investigating, I realized an HSA was right for me. Here's why!  

What is an HSA?

A Health Savings Account (HSA) is just that. It’s a savings account designed specifically for health care expenses. Costs like doctor’s fees, prescription medications, dental treatments and even contact lenses can be covered under an HSA.

You must be signed up for a High Deductible Health Plan (HDHP) in order to participate.

What are the tax advantages?

The nice folks at Investopedia have helped me to name several pros for you … 

  • Pre-Tax Contributions: If you’re signing up for an HSA through your employer, you may have the ability to contribute to your account before taxes are taken out of your salary.
  • Tax-Deductible Contributions: If your employer doesn’t have an HSA option (like mine), you can still contribute after-tax dollars and take the deduction during tax time.
  • Tax-Free Withdrawals: You can withdraw money, tax-free at any time as long as you’re using the funds for qualified medical expenses.
  • Tax-Free Growth: Funds inside an HSA can be invested in stocks, bonds and mutual funds and they grow TAX-FREE. Sweet.

I've included a quick explainer video from Lively (the company I've chosen as my HSA provider since my employer doesn’t provide one):

Do I lose my HSA money at the end of the year if I don’t use it all?

No, you’re thinking about a Flexible Spending Account (FSA).

With an HSA, your funds roll over into the next year. In fact, you can invest your money in the stock market so your funds can take advantage of compound interest.

I’m healthy! Why do I need an HSA?

First off, you never know what tomorrow will bring regarding your health. It’s better to have money saved up just in case (especially with the deductibles involved in an HDHP).

If you're lucky enough to not need the money for health care expenses, the HSA can become another tax-free retirement savings vehicle. All of your unused funds can be withdrawn penalty-free at 65 for use on anything (not just health-related expenses). You’ll just have to pay the income taxes when you withdraw given that the money was originally contributed pre-tax.

That’s right! It has similar tax and retirement advantages as a Traditional IRA or 401k. See why I'm excited about this option?

What happens if I leave my company?

You're covered. If you leave your company for a new job, your HSA account comes with you.

Marriage, Kids and Money Podcast

Am I eligible for an HSA?

You must be enrolled in a High Deductible Health Plan (HDHP) to be eligible for an HSA. Pulling from the IRS website again …

To be an eligible individual and qualify for an HSA, you must meet the following requirements.

  • Be covered under a high deductible health plan (HDHP), described later, on the first day of the month
  • Have no other health coverage
  • Don't participate in Medicare
  • Not claimed as a dependent on someone else's tax return.”

In 2021, HSA contributions for “self-only” are set at $3,600. For families, you are able to go up to $7,200. In 2022, those limits increase to $3,650 and $7,300 respectively. Each year, this amount can change so make sure to refer to IRS resources for up-to-date information.

What are the disadvantages?

Yes, I’m making the HSA sound too good to be true, right? Here is information I learned about the potential downsides (nothing shocking really):

  • Fees: Depending on your plan, the balance you carry and the type of transactions you have, there may be some fees. Check out your plan before proceeding so you know what you’re getting into and how to avoid them.
  • Penalties: If you use an HSA for non-medical expenses before the age of 65, you’ll incur a hefty 20% penalty. So … don't do that.
  • Taxes: Like the Traditional IRA or 401k, when you withdraw money from an HSA you will have to pay income taxes.

Based on my situation, I feel like an HSA was a good move for my family. We've been with Lively since 2018 and we really enjoy their transparency and no-fee platform.

What is an HSA Lively HSA

Honestly, I see the HSA less as a way to save on health care expenses. I see it more as another tax-advantaged retirement savings method. It's really a compliment to my 401k and our Roth IRA accounts.

Even if the money piles up because I’m healthy, my HSA will be another investment account for me to use as I please after age 65. And if my family does need the money for health care expenses, we’ll be covered there too.

Healthy and wealthy. That's the goal!

What is an HSA? – Listen to the Experts

I had the chance to interview Lively's COO about the triple tax benefits of an HSA and how they will help us all improve our health and wealth. The interview was enlightening for me.

I hope you enjoy it too!

What do you think about using an HSA?

Please let me know in the comments below.

Young mother and baby walking together in field

Andy Hill

Andy Hill is the award-winning family finance coach behind Marriage Kids and Money - a platform dedicated to helping young families build wealth and happiness. With millions of podcast downloads and video views, Andy’s message of family financial empowerment has resonated with listeners, readers and viewers across the world. When he's not "talking money", Andy enjoys being a Soccer Dad, singing karaoke with his wife and watching Marvel movies.


  • I’m planning on investing in our HSA for the first time this fall! One quick question – I thought that you get a “triple” tax bonus in that if you withdraw for medical purposes (before or after 65) you don’t pay income tax? After 65 I believe you do only if you use it for non-medical reasons.

    • From what I understand, it’s more of a benefit than a bonus per se. Here are the 3 benefits that are often promoted about the HSA (I believe there are many more!)

      1. Pre-Tax Contributions: If you’re signing up for an HSA through your employer, you may have the ability to contribute to your account before taxes are taken out of your salary.
      2. Tax-Free Withdrawals: You can withdraw money, tax-free at any time as long as you’re using the funds for qualified medical expenses.
      3. Tax-Free Growth: Funds inside an HSA can be invested in stocks, bonds and mutual funds and they grow tax-free.

      If you use the money for approved medical expenses, you can use your HSA debit card with your savings tax-free. For example, I put in $100 in my HSA (pre-tax). I use it to pay for $100 doctor expenses. I don’t have to pay taxes on that $100.

      Did I understand your question correctly?

  • An HSA is a great way to stash away a little extra pre-tax cash for sure! My goal for this year was to fund our HSA with at least our out-of-pocket maximum amount (and we made it!). I plan to keep on contributing the max because I love knowing that money is there if we have a major medical emergency and I won’t have to think twice about it financially. It would hurt more to spend the money from my emergency fund because I could use that for so many other purposes.

    • If Kathryn digs it, then it works for me! I get my welcome packet this week. Less taxes, more protection for the family … winning!


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