I Have Thousands in My HSA. Here’s Why I Still Pay for Healthcare Expenses Out of Pocket

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I have very specific plans for the money in my health savings account. 

A health savings account, or HSA, is one of those accounts I always wanted to have but couldn’t participate in until last year. The reason? HSA eligibility hinges on being enrolled in a high-deductible health insurance plan.

For years, we were spoiled with a health insurance plan that came with a low deductible, or none at all. But last year, our plan changed, so we were able to start funding an HSA. And we can participate this year too, since we have a family-level deductible of $3,000 — the minimum required for a health insurance plan to be HSA-compatible (the minimum deductible for individual coverage is $1,500).

Since we maxed out our HSA last year and have been funding this year’s HSA since the start of 2023, at this point, we have several thousand dollars sitting in that account. But when I got a medical bill the other day, I paid it using my credit card rather than taking a withdrawal from my HSA (not to worry — I can pay off that card in full at the end of the month). And I plan to pay for my remaining healthcare expenses out of pocket this year as long as I’m able to do so rather than take HSA withdrawals.

Now, you might be wondering, “Why on earth wouldn’t you tap your HSA when you have money sitting there for healthcare expenses?” But there’s a very good reason I’m trying my best to leave the money in my HSA alone.

When you have an opportunity to benefit from tax-free growth

Anyone who saves for retirement in a Roth IRA may be familiar with the concept of tax-free investment growth. Well, HSAs work similarly.

When you put money into an HSA and don’t spend it right away, you get the option to invest it. And you’re not liable for capital gains taxes on the money you make in your HSA. Then, as long as you use your HSA funds for qualified healthcare expenses, your withdrawals are tax-free as well.

So here’s my logic. While I have plenty of medical bills now, for many people, healthcare costs soar in retirement. So the longer I’m able to leave my HSA alone, the more opportunity I get to invest my money and grow it into a larger sum. And then, ideally, I’ll have a nice pile of cash to tap at a time in life when my healthcare expenses might be a lot higher.

Remember, unlike flexible spending accounts, HSAs do not require you to use up your balance every year. Those funds can be carried forward as long as you like, so if you’re able to cover your healthcare expenses out of pocket, it’s best to leave that money alone and let it grow.

It pays to leave your HSA alone

If you have funds in an HSA for healthcare spending and money is otherwise tight, then you may want or need to take HSA withdrawals to cover your near-term medical bills. You shouldn’t, for example, have to carry a credit card balance forward and pay interest on it when you have money set aside for medical spending.

But if you can use a credit card to pay for medical costs and then pay off that card by the time your bills come due, then leaving your HSA untapped is a good bet. If you go this route, you may be amazed at how much money you’re able to accumulate in your account over time. And once you reach your senior years, your retired self might thank you for having saved up all that money.

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