Top Five HSA Mistakes That Are Costing You Money and How to Avoid Them, #252

On the show today, I’m discussing something that could be a game-changer for your retirement savings: Health Savings Accounts, or HSAs. If you’re on a high deductible health plan, you might be eligible for this unique, triple tax-free account, but are you making the most of it?

I’m sharing the top five mistakes people make with their HSA accounts. If not avoided, those mistakes can cost you serious money and limit your financial options later in life. I’m covering everything from choosing the right HSA provider to maximizing your investments within the account, tracking expenses, and even strategizing for retirement healthcare needs.

Plus, I’ll give you actionable tips to avoid these common pitfalls and explain how an HSA can function as a powerful retirement savings tool.

You will want to hear this episode if you are interested in...

• [00:00 HSAs offer triple tax benefits for qualified health costs.
• [06:17] Transfer your HSA to invest funds instead of letting them sit idle.
• [08:36] Use a bucketing strategy for investments and allocate funds based on risk and term.
• [13:24] Use an HSA to reimburse for long-term care insurance, COBRA costs, and Medicare Part B, D, and Advantage after age 65.
• [14:31] An HSA is suitable for tax-free withdrawals post-retirement.

The Triple Tax Advantage of HSAs

Health Savings Accounts (HSAs) have grown in popularity steadily due to their unique triple tax advantage: contributions are tax-deductible, earnings grow tax-deferred, and qualified withdrawals are tax-free. If you’re enrolled in a high-deductible health plan (HDHP), you’re likely eligible for an HSA, and maximizing this account could significantly boost your retirement planning.

However, many account holders fail to capitalize on the full benefits. Let’s explore the most common (and costly) mistakes people make with their HSAs, and the steps you can take to avoid them.

1. Sticking with a Poor HSA Provider

Not all HSA providers are created equal. A “good” provider offers diverse sets of low-cost investment options, competitive yields on cash balances, a user-friendly platform, and minimal fees. Unfortunately, many people end up with accounts that lack investment choices or charge unnecessary fees, simply because their employer picked the provider. The good news?

You can transfer your HSA balance to a more flexible institution like Fidelity or Charles Schwab without penalty, even while still employed. Doing so could unlock better investment potential and higher earnings on your cash, making it well worth investigating your current provider's offerings and considering a move if they fall short.

2. Not Investing Your HSA Money

Surprisingly, many HSA owners leave their funds idle in low- or no-interest accounts, missing years of tax-free growth. If you don’t plan to spend your HSA funds soon, consider using a “bucket” approach: keep enough in cash or a money market for your deductible, and invest the remainder in stock or bond funds for long-term growth.

Since medical expenses are rarely incurred all at once, investing your surplus funds can help your account grow exponentially, harnessing the power of compounding. Review your provider’s investment options and allocate your HSA funds according to your risk tolerance and time horizon.

3. Failing to Max Out Contributions

Because HSAs offer unbeatable tax benefits, it’s wise to contribute as much as possible. For 2025, contribution limits are $4,300 for individuals and $8,550 for families, including employee and employer contributions. If you’re 55 or older, you can contribute an extra $1,000 as a “catch-up” contribution.

If you’re married and you and your spouse are over 55, each spouse can make their own catch-up contribution, but you’ll need separate accounts. Remember, you have until the tax filing deadline to make contributions for the previous year, giving you ample opportunity to reach the maximum annual limit.

4. Treating Your HSA Like a Checking Account

Many people promptly spend their HSA funds on current medical expenses, inadvertently missing a powerful savings opportunity. Instead, consider paying for qualified medical costs out-of-pocket and letting your HSA investments grow. As long as you keep records of those qualified expenses, you can reimburse yourself tax-free at any point in the future, even years later.

This allows your HSA to function much like a “stealth IRA,” providing tax-free growth and withdrawals for medical needs in retirement, when such expenses are likely to be higher.

5. Neglecting to Track Qualified Expenses

To take advantage of delayed reimbursement, it’s crucial to maintain careful records of out-of-pocket medical expenditures. The IRS can require documentation during an audit, so scan or save receipts and keep a running log in a spreadsheet.

Good record-keeping ensures that, when the time comes, you can confidently withdraw HSA funds tax-free to reimburse yourself or cover eligible costs like Medicare premiums, long-term care insurance, and more once you reach retirement age.

Make Your HSA Work Harder for You

Used strategically, an HSA can become one of your most valuable retirement planning tools. By carefully choosing your provider, investing wisely, maximizing contributions, delaying withdrawals, and tracking all qualified expenses, you can fully realize the triple tax benefits and enjoy greater financial security in retirement. Take a moment today to review your HSA practices, your future self will thank you.

Resources Mentioned

• Fidelity
• Charles Schwab.com
• Retirement Readiness Review
• Subscribe to the Retire with Ryan YouTube Channel
• Download my entire book for FREE 

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