By Dr. Jim Dahle, WCI FounderThere’s no doubt that a Health Savings Account (HSA), known around here as a Stealth IRA, is my favorite investing account, and it is the first account we fund every year. Too many people are unfamiliar with HSA law, and they don’t realize just how many things you can do with an HSA. Today, we’ll discuss 13 of them.
#1 Save on This Year’s Tax Bill
If your only healthcare insurance plan is a designated High Deductible Health Plan (HDHP), you can make a contribution to an HSA. This year, that amount is $4,300 [2025 — visit our annual numbers page to get the most up-to-date figures]. If the plan is a family plan (often available to two spouses, two domestic partners, or a parent and at least one child), the contribution is $8,550. This amount is then subtracted from the taxable income on your federal income tax return and, in most states (excluding California, New Jersey, and any state without a state income tax), on your state income tax return. If your marginal tax rate, like mine, is in the 40%-50% range, this could save you $3,000, $4,000, or more off your taxes. That might be the equivalent of 2-4 days of work.
#2 Invest It
Many people don’t realize it is possible to invest your HSA. That’s right, it doesn’t have to sit in a piddly little savings account paying almost nothing. All of the best investing providers allow you to invest your HSA into mutual funds, just like your 401(k). There are even self-directed HSAs that allow you to invest in real estate, precious metals, cryptoassets, and private companies in addition to any investment available at a brokerage. After making 12 years of contributions, over half of the value of our HSA is now investment returns (i.e., compound interest).
#3 Transfer It
Just as there are multiple IRA providers and brokerages, there are multiple HSA providers, and no law requires you to leave your HSA money in the place where it started. You’re allowed to transfer it just like you can any other investing account. Note that a direct trustee-to-trustee transfer is slightly different than a rollover. With a rollover, the money is sent to you (minus 20% withheld by the IRS because it views this as a taxable event). As long as you get the money into a new HSA within 60 days, you don’t actually have to pay taxes on it (or the 20% withdrawal penalty), but it’s impossible to get all the money into the new HSA because 20% of it was withheld by the old HSA trustee. You are only allowed to do a rollover once every 12 months, too.
It’s far better to do a direct transfer between trustees. There is no withholding; you can get all the money into the new account. There is no chance of a delay making the entire transfer taxable. Plus, you can do this as many times in a year as you like.
More information here:
How We Built a 6-Figure HSA (and What We Plan to Do with It)
#4 Save on Next Year’s Tax Bill
An HSA is just like any other tax-protected account. As the money grows, the dividends and other income it kicks off are not taxable, so long as it remains in the account. You can buy and sell to your heart’s delight, and no capital gains taxes are due. This results in your money growing faster than it would in a taxable account. Note that if you are a California or New Jersey resident, you will still need to pay state income taxes on HSA income and gains.
#5 Pay for Healthcare Tax-Free
You can take money out of your HSA at any age and use it to pay for eligible healthcare expenses tax-free. In essence, this allows you to pay for healthcare with pre-tax dollars. Using your HSA money for healthcare makes it “triple tax-free” since you got a deduction for the contribution, it grew without taxation, and you withdrew it without taxation.
#6 Save Payroll Taxes
But wait, there’s more! An HSA can also be the only payroll tax-free account. Quadruple tax-free! Similar to employer contributions to your retirement account (the “match”), HSA contributions made by your employer are payroll tax-free. For this reason, even if the HSA offered by your employer isn’t awesome, you may still want to fund your HSA (at least enough to get the maximum employer contribution) via employee payroll. This benefit does not exist for the self-employed (unless the business is taxed as a corporation and you are an employee-owner).
#7 Make Additional Contributions
That $8,550 limit for 2025 isn’t even the limit on how much you can put in there. If you are 55+, you can put an extra $1,000 catch-up contribution into the account. If your spouse is 55+ and uses a separate HSA, they can also put in an extra $1,000. In fact, there isn’t even anything special about marriage when it comes to HSA law. Many employers allow you to put a domestic partner on your health plan with you.
Remember that the only requirement to make a family-size HSA contribution is to be covered by a family HDHP. If you are covered by a family HDHP, you can make a family-size HSA contribution. Since your domestic partner is also covered by a family HDHP, they can also make a totally separate family-size HSA contribution to their own HSA. That’s not the case if you’re married with separate HSAs. If you’re married, you have to share (actually split) one family contribution limit between your two HSAs. If there is a child on one of the plans, the family contribution can all go into a single plan, but there is no double-dipping like there is for domestic partners. A bit of a marriage penalty there.
Another form of additional contribution occurs for your adult, non-dependent children covered by your family HDHP. Since they are covered by a family HDHP, they can make THEIR OWN family-size contribution to THEIR OWN HSA. Unlike a retirement account contribution, this doesn’t have to be earned income that is contributed. You can gift them the money if you want. Just make sure your total gifts to them stay within the annual gift tax exclusion amount ($19,000 in 2025) so you don’t have to hassle with a gift tax return. Using this technique between ages 19-26, I figure you can gift your child a seven-figure HSA.
More information here:
Which Is the Best HSA? Lively vs. Fidelity Review
The Best Way to Track Your HSA Receipts
#8 Divorce the Spending from the Withdrawal
Under current law, there is no rule that you must make the withdrawal from the HSA in the same year in which you spend the money on healthcare. This loophole allows the “save receipts” strategy, where one can keep receipts (scan, digitize, and carefully file these in case you’re audited) for years or even decades, allowing the money to continue to compound tax-free before being withdrawn. You can only withdraw the nominal amount equal to the original expense tax-free, not the compound interest on that principal, but that additional tax-protected growth can be really valuable if you can afford to pay your healthcare expenses from your current cash flow.
#9 Pay for Medicare
While you generally can’t pay for health insurance premiums—even health insurance bought through a government “Obamacare” exchange with HSA money—Medicare is an exception. You can use HSA dollars to pay Medicare premiums, deductibles, co-pays, and co-insurance for Medicare Parts B, C (Medicare Advantage), and D but not Medigap (Medicare Supplement insurance). Many people don’t realize that Medicare has premiums until they turn 65 and start seeing them withheld from their Social Security check. You can reimburse yourself for these using your HSA, a great use for an “overfunded” HSA.
#10 Buy a Boat
HSA money doesn’t have to be spent on healthcare. You can spend it on anything you want. If you have enough past healthcare receipts to “cover” the withdrawal, you can even spend it on a boat tax- and penalty-free. However, even if you didn’t do the save receipts strategy, you can make HSA withdrawals at any time and use them to buy a boat penalty-free (but not tax-free) once you turn 65. In this respect, the tax treatment is exactly like that of your tax-deferred 401(k) or IRA. This is why an HSA is often called a “Stealth IRA.” Even at its worst, it’s still as good as your other retirement accounts. Thus, there is no reason not to maximally fund your HSA and let it grow as large as you want. There really is no such thing as an “overfunded” HSA, because it unofficially turns into an IRA at age 65.
#11 Give to Charity
Don’t need the money for healthcare or a sailboat? You can give HSA money to charity either before or after death. While there isn’t an additional deduction for doing so, there is no tax cost either. Essentially, you’ve donated pre-tax money to your favorite charity. There is no penalty either.
#12 Buy Things You Might Not Think of as Healthcare
The list of eligible HSA expenses is a lot bigger than you might think. All of the following (and more) are eligible to be paid for with HSA dollars.
- Hand sanitizer/masks
- Over-the-counter medications
- Acupressure/Acupuncture
- Feminine hygiene products
- Eyeglasses/contacts/guide dogs
- Special education expenses
- Weight loss program (for a specific illness like obesity)
- Massage (for a specific ailment)
- Orthodontics
- Fertility treatments
- Athletic braces and tape
- Car or house modifications for a medical need
More information here:
Beware! An HSA Is Great But . . .
#13 Stiff Creditors
In 10 states, your HSA, like your retirement accounts, is protected from creditors even if you are forced to declare bankruptcy. These states include:
- Florida
- Indiana
- Minnesota
- Mississippi
- Montana
- Oregon
- Tennessee
- Texas
- Virginia
- Washington
The Bottom Line
Rather than being an insignificant part of your financial life, an HSA can be a very flexible and advantageous addition to your portfolio. That’s why it’s my favorite.
What do you think? Which of these things do you do with your HSA? What else can you do with an HSA?