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In Practice August 18, 2025
Maximizing HSAs’ Value
Getting the most out of an account seen by some as a spending vehicle and by others an investment vehicle.
Reported by Mallika Mitra
With the cost of health care continuing to rise, retirement savers need to use every tool available to save for their futures. But experts say one vehicle is not using to its maximum value: the health savings account.
HSAs are triple-tax-advantaged and can be used to save for health care costs decades down the road. However, experts say the benefits of these accounts—which have been around for about 21 years, but took off in the mid-2010s—are not widely understood.
“Some people view them as a spending vehicle, some people view them as an investment vehicle and some people view them as both, which is kind of incoherent,” says Jake Spiegel, a research associate at the Employee Benefit Research Institute.
Benefits
There are many tax advantages to HSAs, explains Greg Carlson, a senior manager research analyst at Morningstar. The tax advantages are considered “triple” because: HSA contributions are tax-deductible, and growth (both dividends and interest) is tax exempt; withdrawals for qualified medical expenses incurred at any time are tax-free, and there is no penalty for having saved money over and above medical expenses during a participant’s lifetime; and, finally, nonqualified withdrawals after age 65 are taxed, but at the same rate as individual retirement accounts and 401(k)s.
Carlson says there are attractive investment offerings available, and the mutual funds they offer tend to be rated highly by Morningstar.
Unlike flexible savings accounts—another tax-advantaged account that employers may offer their employees as a benefit—HSAs do not have a use-it-or-lose-it model, which means an HSA saver can accumulate a balance and carry it for later use.
Underutilization
Despite the many benefits, HSA holders are not taking full advantage, according to experts. Balances, as of 2023, were relatively low at $4,747, trailing the 2025 out-of-pocket maximums for HSA-eligible health plans for individual coverage ($8,300) and for family coverage ($16,600), according to data from EBRI.
The average employee contribution in 2023 was $2,075, and the average employer contribution was $1,015—both lower than in the 2010s, after accounting for inflation. Meanwhile, the average withdrawal for the more than one-half of accountholders who withdrew funds was $1,801. The average combined HSA contribution was $760 less than the maximum contribution for individuals and $4,660 less than that for account holders with family coverage, EBRI found.
From Spenders to Investors
Not only are account holders not funneling as much as they can into HSAs, but the majority of HSA holders are using these accounts as short-term spending vehicles, rather than long-term investment strategies: Just 15% of HSA holders were invested in assets other than cash in 2023, according to EBRI.
“When you hear about ways to maximize your HSA, the first thing you hear is that you’re supposed to invest your HSA assets,” Spiegel says. Once clients hit a certain threshold—typically $500 to $2,000—they are able to access investing menus. “When you use your HSA as a spending vehicle, you are missing out on the tax-free growth and investment.”
Spiegel adds, though, that these savers are still “stretching their dollars” further than they otherwise could without an HSA.
Where Employers and Advisers Can Help
“We’re trying to move people from being spenders to savers to investors,” says Karen Volo, a senior vice president and the head of health and benefit accounts at Fidelity Investments, which has about 4.1 million HSA customers, 3.6 million of which come to Fidelity through their employer.
That goal makes sense because of retirees’ significant anticipated obligations to pay for unreimbursed medical expenses: A 65-year-old retiring this year can expect to spend an average of $172,500 for health care and medical expenses during their retirement, according to Fidelity’s most recent Retiree Health Care Cost Estimate.
Fidelity offers a savings prioritization tool which can help individuals decide where to put their next dollar, and HSAs are considered. Volo says Fidelity advisers are also well-versed in HSAs and how they can fit into overall financial plans.
Advisers do need to watch out for their clients when it comes to fees: Carlson says that while some providers like Fidelity have kept fees low, some charge extra fees, such as custodial or maintenance fees.
The funds’ menus can also vary, Carlson adds. Some offer one or two strong, high-quality funds in a given category, such as large-cap stocks, international stocks or core bonds, while others offer a wider range. An adviser can help navigate those menus for their clients, he adds.
Where to Invest
For clients worried about contributing to both their HSA and 401(k) accounts, Spiegel says they should not be: EBRI’s database of both HSA and 401(k) accounts shows that in the year most users open an HSA, their 401(k) contributions remain essentially the same. People tend to find ways to contribute to both, perhaps because with an HSA-eligible health plan, premiums tend to be lower than with a traditional health plan, so users may be able to save more, and because many employers contribute to HSAs on a worker’s behalf.
When calculating how much to put toward an HSAs, participants should consider how much they need to—at the very least—cover their health care expenses. After that, they should look at the fees and the quality of the investment offerings as compared to other accounts, such as a 401(k), Carlson says.
