Most people think of Health Savings Accounts (HSAs) as just another way to pay for medical expenses. However, for business owners and high earners, HSAs can be one of the most powerful—and underutilized—tax planning tools available. Used strategically and to their maximum potential, an HSA can help reduce your annual taxable income, help you grow wealth tax-free, and cover health care costs—not only now but in retirement. HSAs are not just limited-use savings accounts; they can be a triple-tax-advantaged vehicle and, as such, a desirable feature of a well-rounded financial plan.
Ensign Partners offers clients comprehensive consulting services that coordinate legal, financial, insurance, tax, and accounting advice to help them achieve their professional and personal financial goals. Unlike consultants who apply their expertise to maximize objectives within a narrow scope, our services are designed to help business owners and other professionals obtain visibility into how different facets of their professional goals can be leveraged and coordinated. We aim to optimize our clients’ overall financial well-being and help them attain their goals sooner and more efficiently.
What Is an HSA—and Who Qualifies?
A Health Savings Account is a tax-advantaged savings account for individuals and families enrolled in high-deductible health plans (HDHPs). As their name implies, these plans have high deductibles; however, that also means that HDHP plans have low premiums. Because insurance payouts do not kick in until the high deductibles have been met, many doctor visits, particularly at the start of the year, will have to be covered out-of-pocket. However, HDHPs assure that catastrophic medical events with high costs will be covered once the deductible is met.
Money put aside in HSAs may be used to cover the out-of-pocket costs. Companies that offer HDHPs to their employees can also contribute to employee HSA accounts, and many do because of the lower insurance premiums they need to pay for these plans. Neither employer nor employee contributions to an HSA account (within prescribed limits) are subject to income tax, and employer contributions, if not from self-employed individuals or partnerships, are not subject to FICA (Social Security) deductions, either. Moreover, unlike Flexible Spending Accounts (FSAs), which typically have a “use it or lose it” feature, HSA funds can roll over into succeeding years and belong to the employee.
To qualify as an HDHP, the health insurance plan must have:
- A deductible of at least $1,650 (individual) or $3,300 (family) in 2025; the amounts are adjusted annually
- A maximum out-of-pocket limit of $8,050 (individual) or $16,100 (family)
Why HSAs Are So Beneficial: The Triple Tax Advantage
What sets HSAs apart is their three-tiered tax benefit:
- Contributions are tax-deductible (pre-tax if made through payroll deductions)
- Growth is tax-free (interest, dividends, and capital gains)
- Withdrawals are tax-free when used for qualified medical expenses
This triple tax advantage means you can lower your taxable income now, grow the account like an investment portfolio, and never pay taxes on the money if used for qualified medical expenses. Moreover, qualified expenses are defined broadly and include payments for doctors, dentists, orthodontists, chiropractors, and other specialists. HSA funds can also pay for prescription and over-the-counter medications and health devices.
HSA funds can be used to pay for insurance premiums upon retirement, including Medicare or additional or supplemental insurance. As a bonus, HSA funds can be used for any reason after age 65 without penalty; however, you’ll pay income tax on distributed funds if they are not used for qualified medical expenses. That makes HSAs a powerful backdoor retirement tool similar to a 401(k) or Roth IRA.
There are, however, limitations on how much can be contributed to an HSA in a given calendar year. For 2025, the limits are:
- Individual coverage: $4,300
- Family coverage: $8,550
- Catch-up contribution (age 55+): additional $1,000
Business owners with high income often overlook these “limited” contributions as insignificant. However, HSA contributions and investment growth stacked over time add up to serious tax savings and long-term value.
How to Optimize Your HSA Strategy
To get the most from an HSA, it must be treated as a long-term asset like a retirement account, not a short-term expense account. To obtain the maximum benefit from an HSA:
- Max Out Contributions Annually: Even if you don’t have or anticipate major medical expenses now, contribute the maximum each year. It reduces your taxable income today and gives you more runway to compound tax-free growth.
- Avoid Spending HSA Funds; Pay Medical Expenses Out of Pocket: If you can afford to, let your HSA grow untouched and pay medical costs from your regular taxable income. One outstanding feature of HSAs is that, if you do this but confront a cash crunch years later, you can “reimburse” yourself for those past-paid medical expenses from your HSA later without penalty if supported by receipts. Used this way, a healthy HSA account can provide you with tax-free income on demand when needed.
- Invest Your HSA Balance: Most people leave HSA funds sitting in cash, earning little or nothing. However, HSAs can be used more strategically. Once you’ve established a readily available base balance in your HSA (for example, enough to cover one’s year’s deductible), you can invest the balance much as you would a retirement account.
- Use for Medicare or Long-Term Care Later: HSA funds can pay for Medicare premiums, out-of-pocket expenses, and even qualified long-term care insurance. That makes it a powerful tool for retirement healthcare planning.
Strategic Use of HSAs
HSAs are designed to be and can be used to pay for medical expenses, but to use them strategically as a financial vehicle and not run into legal problems with how you manage them, avoid these missteps:
- Using the HSA like a checking account for every medical bill
- Forgetting to invest the balance once it grows
- Not tracking qualified expenses for future reimbursement
- Losing receipts (you’ll need documentation if audited)
- Overcontributing without coordinating with your spouse’s plan
Small Account, Big Impact
HSAs don’t get much attention, but should be considered in any comprehensive financial plan. For business owners with an eye on long-term tax efficiency, HSAs offer a unique triple-win: lower taxes now, tax-free growth, and tax-free withdrawals for one of life’s biggest future expenses: healthcare.
At Ensign Partners, we help clients integrate HSAs into their overall wealth strategy where appropriate and when they align with other aspects of their tax planning, retirement goals, and business structure. If you want to investigate how you can turn an HSA into a long-term asset, contact Ensign Partners today, and let us help you build a smarter plan.