Open enrollment is underway for 2025. That special time of year when Americans can choose a new health insurance plan runs from Nov. 1, 2024 to Jan. 15, 2025. It means now is the perfect time to choose a health insurance plan that’s compatible with a health savings account (HSA) — a smart financial move.
HSAs are versatile, tax-advantaged savings and investment accounts that help you accomplish three big money goals at once:
- Save money for healthcare
- Get a tax deduction for your contributions
- Potentially benefit from long-term tax-free investment growth
Many people think you can only access a HSA through an employer-sponsored plan, but that’s not the case. We talked with Alexa Irish, co-CEO of Catch, a company that helps self-employed people get access to health insurance, about why health savings accounts are a must-have item for your 2025 healthcare budget.
Here are the biggest reasons to get a health savings account for 2025.
1. Health savings accounts give you a 2025 tax deduction
One of the great advantages of HSAs is that the money you put in is tax-deductible. For 2025, the IRS rules say individuals can contribute $4,300 to an HSA (if you have self-only health insurance coverage), and families can contribute $8,550.
If you’re in the 22% tax bracket, $8,550 of HSA contributions would reduce your 2025 federal income taxes by about $1,880. And if you’re nearing retirement, keep in mind that you can put even more money into your HSA. “If you’re over 55, you can contribute an additional $1,000 to your HSA as a catch-up contribution,” said Catch’s Irish.
2. HSAs let you invest for the future
If you want to use your HSA money to pay for healthcare in 2025, that’s totally fine. You can just put in enough to cover your medical bills and copays, and nothing more.
But, as Irish explains, if you don’t spend much on healthcare, you can use your HSA as an extra investment account. “The real power of an HSA is that the investment growth on whatever you save is tax-free,” Irish said. “You can always spend your HSA funds completely tax-free, as long as you’re using the funds for qualified medical expenses.”
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3. HSA dollars are not “use it or lose it”
Sometimes people get HSAs confused with flexible spending accounts (FSAs). But here’s another excellent advantage of HSAs: health savings account dollars are yours to keep.
With a typical FSA, you have to use your money by year-end or lose it. HSAs are different — your entire HSA balance can roll over from year to year. Even if you change jobs, your HSA stays with you, just like your 401(k) or IRA account.
“You can spend out of your HSA for eligible health expenses each year, but whatever you don’t spend rolls over,” Irish said. “Unlike an FSA, it never expires, so any remaining funds continue to work for you by growing on a tax-deferred basis.”
4. HSA dollars are easy to use on a wide range of healthcare expenses
Health savings accounts are not only for paying hospital bills or copays for doctor’s office visits. The IRS allows you to use HSA dollars for a wide range of deductible medical expenses, including:
- Acupuncture
- Dental care
- Eyeglasses
- Hearing aids
- Prescription drugs
- Therapy
- Weight loss programs if prescribed by a physician
Along with the wide range of items you can pay for with HSA dollars, it’s easy to use an HSA to make payments. “Some people think HSAs are complicated, but it’s super easy,” Alexa Irish said. “You’ll often get a dedicated debit card, and some retailers offer special portals where all the offerings are HSA-eligible, so you never have to wonder.”
Here’s another thing people might not know about HSAs: You can use the HSA like a bonus retirement account. Before you reach 65, you have to pay extra tax on any withdrawals that aren’t for medical expenses. But after 65, you can withdraw the funds for any purpose — although you’ll have to pay income tax on non-healthcare withdrawals, similar to a traditional IRA.
“After age 65, you can also use your HSA funds for non-health expenses without a tax penalty, you’ll just need to pay normal income tax on the HSA funds when you use them,” Alexa Irish said. “That’s why some people consider HSAs the ‘sleeper’ retirement account.”
Choose an HSA-eligible insurance plan
To use an HSA, you must choose an HSA-eligible health insurance plan, also known as a high-deductible health plan (HDHP). If you don’t do this during open enrollment, it takes a qualifying life event (like losing a job or having a baby) for many employees to change health insurance later in the year.
HSA-eligible health insurance plans for 2025 have a minimum deductible of $1,650 for self-only and $3,300 for family coverage. The maximum annual out-of-pocket expenses for self-only coverage is $8,300 and $16,600 for families.
Bottom line
Health savings accounts give you a flexible, portable, owned-by-you way to save money for healthcare and get great tax breaks now and in the future. You can even use your HSA as a backup “sleeper” retirement account. Don’t miss out on the tax savings and other benefits. Get a health savings account for 2025!
