Although they’ve been available for two decades, there is still a lack of clarity around the power of health savings accounts (HSAs). HSAs are designed to be combined with health insurance plans with high deductibles to help consumers cover their health care costs. High deductibles generally mean lower premiums, and deductible amounts can be paid with pretax HSA dollars. What most people don’t understand is the HSA can also be a savings tool for retirement.

Let’s address five common myths about this unique account.

Myth #1: “I have to use my HSA funds before year-end or I’ll lose them.” – False

Truth: It can be easy to confuse HSAs with flexible spending accounts (FSAs). Both can help you reduce your taxable income by putting money away for health care expenses. But FSA funds must be spent on a year-by-year basis, while HSA funds stay with you until you spend them.

Myth #2: “My employer can keep my HSA funds if I quit.” – Incorrect

Truth: An HSA is owned by you — all assets in the account are always fully vested and cannot be forfeited, meaning an employer cannot touch them. In contrast, FSAs are employer-sponsored plans. Therefore, when you change employers, any contributions to your FSA generally must be spent or will be lost. With the HSA, you can take it with you.

Myth #3: “I can’t use HSA money if I can no longer contribute to my account.” – Common misconception

Truth: You must meet certain requirements to contribute to an HSA, but those requirements don’t apply to distributions. This extends to retirement. HSA funds stay with you until you spend them — including when you are no longer eligible to contribute.

Myth #4: “An HSA is a spending account, not a savings account.” – Not entirely true

Truth: If you can afford to pay for your qualified medical expenses out of pocket, it can be beneficial to leave your HSA funds untapped so they’re available for future health care expenses. This provides a source of savings for a large, unexpected health event or to cover your health care expenses in retirement (which can be substantial). Additionally, many HSAs provide investment options for funds, allowing you to benefit from the possibility of tax-free earnings growth. By turning your HSA into a savings account, you’re taking advantage of all the tax benefits it offers and increasing your ability to cover health care costs in the future, including in retirement.

Myth #5: “I should start by funding my retirement account, then fund my HSA.” – Not necessarily

Truth: When used as intended, there’s no other account type quite as tax favorable as HSAs. They’re triple-tax advantaged.

First, allowable contributions are exempt from federal and most state income taxes. Second, earnings grow tax free. Third, distributions are tax-free when used for qualified medical expenses. Thus, you have greater savings potential with the account.

chart showing tax retirement accounts

For 2024, if you meet the contribution requirements, you can contribute up to $4,150 as an individual, or $8,300 per family, to an HSA. If you’re 55 or older, you can contribute an additional $1,000. If you plan on saving funds for retirement, contributions to the HSA should often come before other tax-advantaged retirement accounts, for example, Roth or traditional retirement accounts.

First, make sure you’re taking advantage of any matching contributions for your HSA, and next up is getting any match from your employer’s retirement plan — such as a 401(k) or 403(b). You don’t want to leave “free” money on the table. Then, you can finish funding your HSA, followed by other tax-favored retirement accounts.

How Edward Jones can help

For an account that often doesn’t receive much attention, HSAs can be a powerful tool for covering health care costs throughout your life and helping you save for the future. Your  financial advisor  can clear up any remaining mystery surrounding this account and help you understand how your HSA might fit into your overall financial strategy.

Important information:

Edward Jones currently does not offer a health savings account, so we cannot open or hold an HSA. We’re providing this information solely for educational purposes because we believe HSAs are a helpful tool in saving for health care expenses.