For 2025, the IRS has increased the contribution limits to $4,300 for individuals and $8,550 for families, up from $4,150 and $8,300, respectively. When it comes to financial planning, HSAs have become an increasingly valuable tool for helping manage rising health care costs.

Are HSAs being utilized enough?

Despite their benefits, many eligible individuals aren't taking full advantage of HSAs. Many consumers are under-educated about the advantages of HSAs, leading to underfunded accounts and missed investment opportunities. According to the 2024 Devenir Report, 18% of HSAs aren't funded in their first year, and many participants don't contribute up to the IRS maximums.

Common misconceptions, such as the "use-it-or-lose-it" myth, discourage many people from maximizing their HSA contributions. Unlike Flexible Spending Accounts (FSAs), HSAs don't have a year-end deadline for spending funds. Additionally, HSAs aren't just for high earners; they can be a valuable tool for anyone looking to prepare for future medical expenses.

HSAs as a dual savings tool: Health care & retirement

HSAs aren't just for immediate health care expenses—they also serve as a long-term savings tool, particularly for retirement. By considering HSAs a retirement resource, individuals can build a health care fund for their later years when medical costs typically increase. Recent years have seen medical expenses in retirement, including Medicare premiums and out-of-pocket costs, become more substantial. HSAs offer a way to prepare for these expenses without tapping into other retirement savings like 401(k)s or IRAs.

Compared to other retirement accounts, HSAs offer unique tax benefits. Contributions are tax-deductible, and unlike 401(k)s or IRAs, there are no required minimum distributions. After age 65, funds can be used for nonmedical expenses without penalty, though they'll be subject to income tax.

Strategies to increase HSA participation

Employers can play a pivotal role in encouraging their employees to take advantage of an HSA. Providing education and incentives can significantly boost participation by encouraging more individuals to get involved and take advantage of the opportunities presented to them. Employees are increasingly considering benefits like HSAs when evaluating job offers, and employer contributions can make a company more attractive to top talent.

Clear communication is key to dispelling myths and promoting the benefits of HSAs. Education should be ongoing, not limited to open enrollment periods. Employers should integrate HSA discussions into broader financial wellness programs, ensuring that employees understand how HSAs can fit into their retirement strategy.

Conclusion

By understanding the potential tax advantages of using an HSA, individuals can better prepare for health care costs in both the short and long term. Employers and financial advisers play a crucial role in educating and encouraging participation, paving the way for more individuals to unlock the full potential of this savings tool.