How to Save and Spend with an HSA

By Morgan Carpenter

December 2020

According to Fidelity, this year the average couple needs $295,000 for medical expenses after the age of 65. As that number sinks in, people tend to respond with, “Well, Medicare will cover that, right?”

While Medicare covers many health care expenses, it does not cover everything. Even on Medicare, people still have to pay deductibles, copays, and excluded benefits, all of which will likely come out of pocket.

Thankfully, there is an option that as an employer you can offer your employees – a Health Savings Account (HSA). An HSA is often utilized to save for medical expenses. While the “S” in HSA stands for savings, the HSA can also be a great tool for spending.

How Does an HSA Work?

The account owner of an HSA is your employees. If they change their job, adjust their medical coverage, move to a different state, or become unemployed, they will keep their HSA. Every year, they decide how much they want to deduct from their paycheck (on a pre-tax basis) to contribute to their HSA.

In 2021, the annual maximum contribution amount for an HSA is $3,600 for self-only and $7,200 for families. When an individual is faced with qualified medical expenses, such as a deductible, money can be withdrawn from the HSA to pay for those costs.

With an HSA, the tax advantages are three-fold. First, contributions to a health savings account are either pre-tax or tax-deductible. Second, as the account grows, the interest earned is tax-free. Third, if and when you make withdrawals for eligible expenses, you do not pay taxes on those withdrawals. It should be noted that you can only contribute to a health savings account if you have a High Deductible Health Plan (HDHP).

In addition, you cannot make contributions to an HSA plan if you have dual health insurance coverage from a secondary insurance plan.

Saving and Spending

The significant tax advantages that an HSA yields can help an individual or family save tens of thousands of dollars over the years. The more you keep in your HSA, the more it will grow. As the years go on, the funds in a health savings account will always belong to the employee. Additionally, the money in the account will roll over from year to year, so they never have to worry about losing their savings.

Money from an HSA can be also utilized for spending purposes. With an HDHP, you typically have a lower premium since the deductible is higher. As a result, your employees have more money at their disposal. If they are faced with unemployment or need to pay for COBRA, an individual can use their HSA money to cover those finances.


While an HSA can be a great tool, it may not be the right fit for everyone as they consider current and future medical expenses. Talk to our Principal Ron Bland to explore if your company should offer a HDHP to open an HSA. Our team, made of expert advisors, can also assist you in acquiring a robust and comprehensive benefits package. You can reach us at or 650.348.6234 x12.


Disclaimer: Any information related to compliance or other subject matters in this blog is intended to be informational and does not constitute legal advice regarding any specific situation. The content of this blog is based on the most up-to-date information that was available on the date it was published and could be subject to change. Should you require further assistance or legal advice, please consult a licensed attorney.

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