The High‑Earner’s Often Overlooked Retirement Tool: HSAs, Simplified

A Health Savings Account (HSA) gives you three tax wins – deductible contributions, tax‑free growth, and tax‑free withdrawals for qualified medical expenses. With the right health plan, high‑income earners can use an HSA to cut today’s taxes and build a retirement medical fund.

What an HSA is

An HSA is a tax‑exempt account used to pay or reimburse qualified medical, dental, and vision costs for you, your spouse, and dependents. You open it with an approved trustee (bank/insurer/administrator). You or others (including an employer) can fund it. Individual contributions are deductible; employer contributions aren’t income. Qualified distributions are tax‑free, and investment earnings used for qualified expenses are tax‑free—the triple tax advantage.

Who qualifies

You must be enrolled in an HSA‑eligible high‑deductible health plan (HDHP) and:

• Not covered by any other non‑HDHP plan
• Not enrolled in Medicare
• Not claimed as a dependent by someone else

Married? Each spouse needs their own HSA (you can still spend HSA funds on either spouse’s and dependents’ qualified expenses). There are no income limits for eligibility.

2025 contribution limits

• $4,300 (self‑only coverage)
• $8,550 (family coverage)
• +$1,000 catch‑up if you’re 55+

Use HSA dollars as you go for eligible costs or invest and let them compound for future needs.

What you can use it for

The IRS’s list of qualified medical expenses (Pub. 502) is broad: eyeglasses, hearing aids, hospital services, lab fees, dental work, prescriptions, copays, approved long‑term care services, nursing services, durable medical equipment, and more. Most cosmetic procedures are excluded.

Make it work for retirement

Many high earners pay current medical costs out of pocket and let HSA balances grow invested over time. After age 65, you can still use the HSA for qualified expenses tax‑free, including some long‑term care costs and premiums for long‑term care insurance. Non‑qualified withdrawals after 65 are taxed like a traditional 401(k).

Tax impact on high earners (example)

Maxing an HSA creates an immediate deduction. At the 37% bracket, the savings add up:

Filing Status	2025 HSA Contribution	Tax Bracket	Estimated Tax Savings
Single Individual	$4,300	37%	$1,591
Married Couple	$8,550	37%	$3,164

 

Catch‑up: If you’re 55+, an extra $1,000 contribution can save $370 more at 37%. Some states also offer state‑level tax benefits.

HSA vs. FSA (what’s different)

You generally can’t contribute to a standard health FSA and an HSA in the same year. Key contrasts:

Feature	HSA (Health Savings Account)	FSA (Flexible Spending Account)
Eligibility	Requires an HSA‑eligible HDHP	Employer‑sponsored; no HDHP required
Ownership	You own it; portable between jobs	Employer‑owned; typically not portable
Contribution Limit (2025)	$4,300 (individual); $8,550 (family)	$3,300 (employee max)
Rollover	Yes — funds carry over year to year	Generally, no — use‑it‑or‑lose‑it (some plans allow a grace period)
Investing	Allowed (stocks/bonds/mutual funds)	Not allowed
Tax Benefits	Triple tax advantage: deductible contributions, tax‑free growth, tax‑free qualified withdrawals	Pre‑tax contributions; tax‑free qualified withdrawals
Long‑Term Use	Supports retirement and long‑term care; non‑medical after 65 taxed like 401(k)	Intended for short‑term, in‑year expenses

 

Quick tips to maximize an HSA

• Choose a low‑fee HSA provider with solid investment options.
• Invest according to your time horizon; keep a modest cash buffer for near‑term costs.
• Save receipts and reimburse yourself later when it’s tax‑
• Track eligibility annually; avoid funding an HSA if you’re no longer HDHP‑

 

The takeaway

For high‑income earners, an HSA is a powerful, often overlooked way to reduce taxes now and build a dedicated, tax‑free pool for future healthcare and retirement needs.