Skip to content Personal Investing

Choose a site

Enterprise Corporate Personal Investing Workplace Retirement Financial Advisors/Intermediaries Institutional Investors/Consultants Recordkeeping Sponsors/Consultants
United States
English United States

Localization Settings

Current Selection

Americas

(1 item)
United States
English United States
United States
English
Help Account Types

Account Types

Whether you’re saving for retirement, planning for your family’s future, or investing your extra cash, we can help you get started.

Explore All Account Types

Retirement

Retirement Explore Retirement IRAs Roth IRA Traditional IRA Rollover 401(k) & Transfer IRA Small Business, Self-Employed & 403(b) Plans

Retirement Guidance

Retirement Guidance Saving for Retirement Approaching Retirement Living in Retirement Roth vs. Traditional IRA Rollover 401(k) Options

General Investing

General Investing Explore General Investing Individual Joint Trust Minor

College Savings

College Savings Explore College Savings T. Rowe Price College Savings Plan Maryland College Investment Plan Alaska 529

Brokerage

Brokerage Explore Brokerage
Funds

Funds

Our wide selection of mutual funds and ETFs provides you with the building blocks for a diversified portfolio.

Explore Funds

Mutual Funds

Mutual Funds Learn about Mutual Funds View All Mutual Funds Compare Mutual Funds T. Rowe Price® Select Funds Morningstar 4- & 5-Star Rated Funds Stock Funds Bond Funds Target Date Funds Asset Allocation Funds Money Market Funds Daily Prices Historical Performance Mutual Fund Dividend Distributions Mutual Fund Prospectuses & Reports I Class Shares Closed Funds

Exchange Traded Funds (ETFs)

Exchange Traded Funds (ETFs) Learn about ETFs View All ETFs ETF Dividend Distributions ETF Prospectuses & Reports
Advice

Advice

Our Advice solutions apply our decades of investing experience to help you meet your goals.

View Advice Solutions

Retirement Advisory ServiceTM

Retirement Advisory ServiceTM

Partnering with your advisor, set actionable strategies for your investments and retirement planning.

Explore Retirement Advisory Service

The ActivePlus Portfolios® Program

The ActivePlus Portfolios® Program

Get a model portfolio recommendation based on your timeline and risk tolerance – in minutes.

Explore the ActivePlus Portfolios Program

Private Asset Management

Private Asset Management

Direct access to a dedicated portfolio manager who actively manages your assets of $5 million +.

Explore Private Asset Management
Resources

Resources

Investment planning resources for your many financial goals.

Explore Resources

Tools

Tools Explore Tools Compare Funds My Watchlist Retirement Income Calculator Automatic Buy Research & Analysis

Planning

Planning Explore Planning Investing Basics Required Minimum Distributions College Savings Planning Asset Allocation Planning Tax Planning Estate Planning Social Security Planning Charitable Giving

Insights

Insights Explore Insights Markets & Economy Personal Finance Retirement Planning Retirement Savings Asset Allocation Equities Fixed Income

Life Events

Life Events Explore Life Events Inheriting an Account Job Change Family Events
About Us

About Us

Learn how we've focused since 1937 on one simple goal: to help you achieve yours.

Learn About Us

Why T. Rowe Price?

Why T. Rowe Price?

Discover how our approach has set us apart for over 80 years, and has helped millions of people invest in things that matter most.

Explore Why T. Rowe Price

Summit Program Exclusive Client Benefits

Summit Program Exclusive Client Benefits

Learn about our complimentary client benefits program designed to help you invest more confidently.

Learn about the Summit Program
Open an Account
United States
English United States

personal finance |  MARCH 25, 2024

How to Best Use Your Health Savings Account

Investing in an HSA has great tax benefits—if the insurance coverage makes sense.

 

Key Insights

  • Health savings accounts (HSAs) are rightfully viewed by financial planners as a powerful retirement savings tool with unmatched tax benefits—if used properly.

  • Savers should consider a range of short- and long-term strategies with HSAs and avoid situations where they can be suboptimal or even harmful.

  • Eligibility for an HSA requires a high-deductible health plan, so individuals need to evaluate health coverage factors before seeking the tax benefits of an HSA.

Roger Young, CFP®

Thought Leadership Director

Since 2004, individuals enrolled in high-deductible health plans (HDHPs) have been able to fund health savings accounts (HSAs). A Mercer survey showed that over 80% of large employers nationally offered HSA-eligible health plans in 2022.1 As more employers offer these plans, HSA usage has grown steadily to approximately 36 million accounts and $116 billion in assets.2 We expect that HSAs will be a growing part of the health care landscape.

In an HDHP, the insured is responsible for a significant portion of health expenses up front before the insurance company pays. However, HDHPs must also include a limit on participants’ out-of-pocket expenses. Premiums on these plans are generally lower than more traditional, lower-deductible policies. See Figure 1 for current IRS parameters on HDHPs and HSAs.

(Fig. 1) Key HSA facts (2024)3

Key HSA facts 2024
   Individual Family
Eligibility Under 65 and enrolled in HDHP
Minimum deductible for HDHP $1,600 $3,200
Maximum out-of-pocket expense for HDHP $8,050 $16,100
HSA annual contribution limits $4,150 $8,300
HSA per-person catch-up contribution limit (age 55) $1,000 $1,000

The HSA is structured with significant tax incentives to choose an HDHP and save or invest for health costs. Proponents of HSAs often refer to a "triple-tax benefit": tax deduction, tax-deferred growth, and tax-free qualified distributions. This essentially combines the benefits of Roth and pretax strategies in an individual retirement account (IRA). In addition, the funds can be used before retirement for qualified medical expenses—without tax or penalty. If used before age 65 for other purposes, however, a 20% penalty is assessed. Figure 2 (in the "Full Article (PDF)" below) compares HSAs with other tax-advantaged savings vehicles.

A key consideration in the evaluation of HSAs is the definition of a “qualified medical expense.” In general, expenses that would qualify for a federal income tax deduction are considered qualified. (As you might expect, you can’t double-dip and count them both as qualified for your HSA and as itemized deductions.) Some insurance premiums are qualified: Medicare, long-term care, COBRA, and coverage while you’re unemployed. However, one significant medical premium is not qualified: Medicare supplement insurance, also referred to as Medigap. Hybrid life insurance/long-term care policies are usually considered life insurance and, therefore, aren’t qualified.

A helpful feature of HSAs is that qualified medical expenses from prior years can be used to take qualified distributions. The expenses need to have occurred after you established the HSA and cannot have been otherwise reimbursed or used for itemized deductions.4 This feature adds to the flexibility of HSAs if you can keep good documentation of medical expenses and tax returns (potentially for a much longer time than you would ordinarily keep those records).

1Mercer National Survey of Employer-Sponsored Health Plans, 2022. Includes employers with 500 or more employees.
22023 Midyear Devenir HSA Research Report, September 21, 2023.
3IRS Revenue Procedure 2022–24.
4Internal Revenue Bulletin 2004–33 Notice 2004–50, Health Savings Accounts—Additional Qs&As, Answer 39, August 16, 2004.

Important Information

This material is provided for general and educational purposes only and is not intended to provide legal, tax, or investment advice. This material does not provide fiduciary recommendations concerning investments, investment strategies, or account types; it is not individualized to the needs of any specific investor and is not intended to suggest that any particular investment action is appropriate for you, nor is it intended to serve as the primary basis for investment decision-making.

The views contained herein are those of the authors as of March 2024 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

All investments involve risk. All charts and tables are shown for illustrative purposes only.

View investment professional background on FINRA's BrokerCheck.

202403-3467792

 

Next Steps