Health Savings Accounts: A Complete Guide for Young Professionals

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  • Health Savings Accounts: A Complete Guide for Young Professionals
Author: Joseph Reinke, CFA

In today’s healthcare landscape, Health Savings Accounts (HSAs) are growing increasingly important for smart financial planning and robust health care coverage. For young professionals navigating the complexities of healthcare costs, HSAs provide a versatile financial tool with significant tax advantages. Let’s dive into what HSAs are and why they might be the perfect addition to your financial strategy.

Understanding HSAs

Below are three primary items you need to know about Health Savings Accounts.

Definition and Purpose

HSAs serve as a dual-purpose financial asset.  This means the can be used in managing current healthcare expenses and a vehicle for future savings. HSAs are uniquely positioned to put the power of healthcare spending into your hands.

Eligibility Criteria

Before you can open an HSA, you must have coverage under an HDHP (High Deductible Health Care Plan).  Additionally, you shouldn’t be claimed as a dependent on someone else’s tax return and not covered by any other non-HDHP, including Medicare.


The real charm of HSAs lies in their triple tax advantage: pre-tax contributions reduce your taxable income, earnings on your contributions grow tax-free, and you won’t pay taxes on withdrawals for qualified medical expenses. This framework not only aids in immediate healthcare costs but also enhances your retirement nest egg.

How HSAs Work

Contributing to Your HSA

You, your employer, or anyone else can make contributions to your HSA up to an annual limit. In 2023, the contribution limits are $3,850 for individual coverage and $7,750 for family coverage. These contributions are deductible from your taxable income, lowering your tax bill.

Using Your HSA Funds

Your HSA can pay for various medical expenses, from doctor’s visits to prescriptions. The funds can be used immediately or saved for future needs, such as healthcare costs in retirement — adding to the account’s flexibility.

There is no timeframe for how long you have to be able to withdraw if you decide to pay for your medical expenses out of pocket.  This means you can withdraw the funds now to pay for an expense or wait. You just need to make sure you have every single receipt down to the cent correct.

For example, let’s say you have a medical expense of $2,500 and have $5,000 in your HSA.  Most people immediately withdraw the money out of the HSA tax free and pay for the expense.  However, you can wait let’s say for 20 years and let your $5,000 grow tax deferred.  Then in 20 years remove $2,500 from the HSA to cover the expense that occurred 20 years previous.  If you do this, just know you are at a massive risk to potentially be audited.

Also, it sucks to have to keep records for that long and most people don’t.  I’ll provide a non-HSA example that we see at FitBUX almost everyday.

We work a lot with student loans and specifically, people that are working at a non-profit and trying to pursue PSLF. Let’s say you worked for 10 years at a non-profit and were trying to get your loans forgiven but never filled out the Employment Certification Form (ECF) and you had worked for 4 different non-profits over those 10 years. You would now need to backtrack and try and get those 4 ECF forms signed and filled out by those employers and it would be an absolute nightmare to do which is a major pain in the a$$. It would be a very similar thing with the HSA and needing to save every single paper receipt that you’ve gotten over say a 25 year time period. Is the risk worth it?

Investment Opportunities

Many people don’t realize that HSAs can be invested in mutual funds or other investment vehicles such as ETFs, similar to IRA retirement accounts. This can significantly increase the account’s growth potential over the long term.

Comparing HSAs with Other Health Accounts

HSAs versus FSAs

There are key differences between HSAs and Flexible Spending Accounts (FSAs). For instance, HSAs offer higher contribution limits and the ability to rollover the entire balance from year to year, unlike FSAs which often have use-it-or-lose-it policies.

HSAs and Retirement Planning

HSAs share similarities with retirement accounts like 401(k)s and IRAs because of their tax benefits. In fact, after reaching age 65, you can withdraw funds for non-medical expenses without penalty, though such withdrawals would be taxed as income.  Also, like Roth IRAs there is no required minimum distribution age.

Maximizing Your HSA Benefits

Strategies for Saving and Spending

To make the most of your HSA, consider contributing the maximum allowable amount and using the account primarily for major medical expenses, thereby allowing your balance to grow.

Investment Strategies

Choose investments within your HSA that align with your risk tolerance and time horizon. Diversify your investments to maximize growth and reduce risk.  An HSA should be used to increase your retirement income diversification.  This means having multiple times of accounts that are taxed differently once you hit retirement.

Planning for the Future

Integrate your HSA into your long-term financial plan. Look at it as a complementary tool to your other retirement accounts, providing additional savings for healthcare costs.

Common Misconceptions About HSAs

Many people wrongly assume that HSAs are only beneficial for individuals with significant medical expenses. However, HSAs can benefit anyone with an HDHP, offering financial and tax advantages that extend beyond healthcare spendings, such as growing funds for future medical needs or retirement.

Key Takeaways for Getting Started with Your HSA:

  1. Choosing an HSA Provider: Look for providers with low fees, diversifying investment options, and convenient account access.
  2. Opening Your Account: Online applications simplify the process, requiring just your personal details, HDHP information, and sometimes an initial deposit.
  3. Contributing to Your HSA: Arrange automatic contributions to ensure steady growth of your HSA funds, benefiting you in the long run.


For young professionals eyeing both their healthcare costs and future savings, HSAs are an attractive and potent financial tool. With the tax benefits and investment potential, HSAs deserve consideration in your overall wealth-building strategy.

If you have any further questions about an HSA, head over to FitBUX and schedule a call. Don’t leave your healthcare expenditure and savings to chance; consider your unique financial situation and how an HSA could work in your favor. Remember, intelligent planning today paves the way for a healthy and financially secure tomorrow.

Joseph Reinke, CFA

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About the Author

Joseph Reinke is a Chartered Financial Analyst (CFA) Charter Holder and founder of FitBUX which has helped over 14,000 young professionals on their journey to financial freedom. Joseph has been personally investing since he was 12 years old.

In addition, he has experience in student loans, mortgages, wealth management, investment banking, valuation, stock trading, and option trading. He has been on 100s of podcast and has been invited to 100s of universities to discuss financial planning with their soon to be graduates.

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