Unassuming and utilitarian, health savings accounts (HSAs) are a great way to put aside pre-tax dollars for healthcare expenses.

But there’s more to these financial wallflowers than meets the eye.

HSAs offer a cache of tax benefits—some known, some less so—to those willing to give them a second glance.

The Basics

HSAs are not open to everyone.

To qualify, individuals must be enrolled in an eligible high deductible health plan (HDHP).

Account holders can—and should, if possible—contribute the maximum allowed each year. In 2021, this amounts to $3,600 for individuals and $7,200 for families, up a bit from 2020.

Individuals age 55 and older can also throw in an extra $1,000 each year.

The Benefits

Why max out contributions to an HSA?

Triple tax savings, which are like winning the accounting jackpot:

  • Contributions receive a federal (and often state) income tax deduction.
  • Funds—when invested in a mix of low-cost index funds—grow tax-free.
  • Withdrawals for qualified medical expenses are not taxed.

An additional benefit: Unlike flexible savings accounts, HSA balances carry over year to year.

Wisely invested and left to grow, these funds can form a nest egg for unexpected healthcare needs or even healthcare expenses in retirement.

The Bonuses

If this isn’t enough, HSAs really shine when it comes to these five lesser known perks.


1. Save on payroll taxes. Contribute to an HSA through a company cafeteria plan and you’ll avoid paying federal and (usually) state taxes, as well as payroll taxes (7.65%). Not even the mighty 401k can claim these savings.

2. Double up a catch-up contribution. If you and your spouse are both 55 or older, you can double your annual $1,000 “catch-up contribution” simply by opening a separate HSA account for your spouse.

3. Take advantage of IRA to HSA funding. While a qualified HSA funding distribution (QHFD) is only allowed once in a lifetime, you can fund an HSA with pre-tax funds (only) from an IRA. Inherited IRA accounts can be used, and this tax-free transfer can count toward the inherited IRA required minimum distribution. Keep in mind you must remain HSA eligible for 12 months after making a QHFD.

4. Maximize funding with the last month rule. If you leave a job mid-year and subsequently enroll in an HSA-eligible HDHP by December 1, you can contribute and deduct a full year’s contribution limit for that year. There’s a catch, though: You must remain covered by the HDHP for the next 12 months to reap the rewards.

5. Maximize family contribution limit for adult children. Do you have an adult child (up to age 26) who is not a dependent but is still covered by your family healthcare plan? If so, you can set up an HSA plan for your child and fund it with the full family plan contribution limit of $7,200. Your son or daughter will receive a tax deduction in that amount, a great way to turbocharge initial funding.

The Bottom Line

Making the most of an HSA is a matter of seeing it for what it really is—an ace up your sleeve.

If you’d like to maximize the tax advantages of your HSA or strategize a long-term plan for your account, contact Vista. We’ll help you see this wallflower for the star it really is.