If you've heard the term “triple tax advantaged” tossed around when people talk about Health Savings Accounts (HSAs), you're not alone. It’s one of the biggest reasons HSAs are considered such a powerful financial tool—but what exactly does that phrase mean?
Let’s break it down.
First, What Is an HSA?
A Health Savings Account (HSA) is a personal savings account you can use to pay for qualified medical expenses. But unlike a regular savings account, an HSA is only available if you're enrolled in a high-deductible health plan (HDHP).
The real kicker? HSAs come with three unique tax advantages that make them one of the most flexible and tax-friendly accounts out there.
The 3 Tax Benefits of an HSA
1. Tax-Deductible Contributions
Every dollar you put into your HSA reduces your taxable income. Whether you contribute through payroll deductions or directly from your bank account, those contributions are tax-free at the federal level (and often at the state level too).
- Example: If you earn $60,000 and contribute $3,000 to an HSA, you’ll only be taxed on $57,000.
2. Tax-Free Growth
Your HSA funds don’t just sit there—they can grow. Many HSA providers offer the option to invest your balance in mutual funds, ETFs, or other vehicles. And just like a 401(k) or IRA, your investment earnings aren’t taxed while they grow.
- Translation: The earlier you start contributing to an HSA, the more powerful compounding can be—especially if you’re healthy and don’t touch the money for years.
3. Tax-Free Withdrawals (for Qualified Expenses)
When you withdraw funds from your HSA to pay for qualified medical expenses, the money comes out completely tax-free.
That includes things like:
- Doctor visits
- Prescriptions
- Dental and vision care
- Mental health services
- Certain over-the-counter items
As long as the expense is eligible, you’ll never pay taxes on that money.
Bonus: HSA Money Is Yours Forever
Unlike Flexible Spending Accounts (FSAs), HSA funds roll over year to year. And unlike Health Reimbursement Arrangements (HRAs), the account is yours to keep even if you change jobs, health plans, or retire. At age 65, you can even start using your HSA for non-medical expenses (you'll just pay regular income tax like a traditional IRA).
Why This Matters for Small Business Owners and Individuals
If you're a small business owner, self-employed, or just trying to stretch every dollar, HSAs offer an incredibly tax-efficient way to save for both short-term and long-term health expenses.
And when paired with a high-deductible health plan, you can often save money on premiums while building a healthcare nest egg.
LegUp Health Can Help
At LegUp Health, we make it easy to understand whether an HSA-eligible plan is right for you. We’ll walk you through your plan options, help you compare costs, and ensure you don’t leave money on the table when it comes to tax savings.
Want to see how much you could save with an HSA? Book a free consultation with one of our licensed advisors today.
