WEALTH MAGES What Is an HSA?
A Health Savings Account, or HSA, is a tax-advantaged investment account designed specifically for medical expenses. It works alongside a High-Deductible Health Plan (HDHP) — meaning to open and contribute to an HSA, enrollment in a qualifying high-deductible health insurance plan is required.
The idea is straightforward: money goes into the account, gets invested, and can be spent on eligible medical costs — things like doctor visits, prescriptions, dental work, vision care, and more.
The account belongs to the individual, not the employer. If a job changes or health insurance switches, the HSA and all the money in it stays put.
The money rolls over every year. Unlike Flexible Spending Accounts (FSAs), there is no “use it or lose it” rule. Whatever is not spent carries forward and continues to grow.
For 2025, the IRS contribution limits are $4,300 for an individual and $8,550 for a family. People aged 55 or older can add an extra $1,000 on top of that.
The funds are invested — similar to a 401(k) — in stocks, bonds, or funds of the account holder’s choosing, meaning the balance can grow over time through market returns.
At age 65, an HSA essentially becomes a second retirement account. Withdrawals for non-medical expenses are allowed without penalty, though they are taxed as ordinary income — the same way a traditional 401(k) works. Before age 65, non-medical withdrawals carry both taxes and a 20% penalty.
Tax Benefits
The HSA is one of the few accounts that offers a triple tax advantage — and that combination is what makes it stand out from nearly every other savings or investment account available.
The three layers work like this: contributions reduce taxable income, investments grow without being taxed, and withdrawals for qualified medical expenses are tax-free.
No other mainstream account — not a 401(k), not a Roth IRA — offers all three of these at once.
Contributions through employer payroll skip both federal income tax and FICA taxes (Social Security and Medicare), which adds up to 7.65% in additional savings compared to contributing outside of payroll. Contributing outside of payroll still reduces taxable income, but FICA taxes have already been paid on that money, making the overall savings slightly smaller.
To put it in perspective — for someone in the 20% federal and 5% state tax bracket, every $100 contributed through payroll saves $32.65 in taxes ($20 federal + $5 state + $7.65 FICA). Contributing outside of payroll, that same $100 saves $25 — still meaningful, but noticeably less.
For someone who plans to return to their home country after working in the US for some time, the HSA does not have to be closed. The balance can stay invested and continue to grow — still sheltered from taxes. All those years of tax-free contributions and tax-free growth remain intact. When medical expenses come up back home, what qualifies as reimbursable is largely based on personal judgment — and since reimbursement is self-managed, it only becomes a question if the IRS ever follows up.
Where to Use an HSA
HSA funds can be used for most common medical expenses — doctor visits, prescriptions, dental, vision, mental health services, and medical equipment, among others.
HSA funds can also cover medical expenses outside the US. The only thing that matters is whether the type of service qualifies — not where it takes place. A routine checkup overseas is fine. A cosmetic procedure is not, regardless of country.
When a medical bill comes up, pay for it using any card — credit, debit, or otherwise — and request reimbursement through the HSA provider’s portal. The funds then get transferred back to a linked personal bank account. This is called self-reimbursement. No receipt is required by the HSA provider, but keeping them is important in case the IRS ever asks for proof during an audit. For those who earn credit card rewards, this approach has an added bonus — every medical expense paid by credit card earns points or cashback that would otherwise be missed if the HSA card were used directly.
There is no deadline to request reimbursement. An expense paid years ago can still be claimed today, as long as it happened after the HSA was opened and the receipt has been kept.
Why Not to Use the HSA Unless Necessary
The real power of an HSA comes from leaving the money untouched for as long as possible. Every dollar spent from the HSA today is a dollar that stops growing — and given the triple tax advantage, that lost growth is more costly than it appears on the surface.
The better approach is to pay medical expenses out of pocket using a credit card, keep the receipt, and let the HSA balance continue to grow. The reimbursement can be claimed at any point down the road — there is no deadline. This means the HSA can quietly compound for years while everyday medical bills get handled elsewhere.
The HSA is best thought of as a long-term investment account that happens to have a medical purpose. Tapping into it early trades future tax-free growth for short-term convenience. The longer the balance stays invested, the more valuable it becomes — especially heading into retirement or when planning to leave the workforce.
In short, use the HSA as a last resort for current medical expenses, not a first one.
Consolidating HSA Accounts
Every time a job changes, the previous employer’s HSA does not disappear — it just sits with whatever provider that employer used. Over time, it is easy to end up with multiple HSA accounts scattered across different providers, each with their own fees, limited investment options, and separate logins to keep track of.
Consolidating everything into a single account makes the HSA easier to manage, cheaper to maintain, and more effective as a long-term investment vehicle.
Fidelity is widely regarded as the best HSA provider for individual account holders for a few reasons. There are no account fees and no minimum balance requirements. The investment options are broad, including low-cost index funds. And since Fidelity is already a well-known brokerage, the HSA sits alongside other investment accounts in one place.
Most employer HSA providers require a minimum balance — typically around $2,000 to $3,000 — to sit in cash before any of it can be invested. That cash portion earns little to nothing. At Fidelity, even uninvested cash generates around 3 to 4% through a default money market fund, meaning every dollar works harder from day one.
To consolidate, the process is called an HSA transfer — not a withdrawal. This distinction matters. A withdrawal triggers taxes and potentially the 20% penalty. A transfer moves the money directly from one HSA provider to another without ever touching personal hands, so no taxes or penalties apply.
The steps are straightforward. Open an HSA at Fidelity if one is not already in place. Then initiate a transfer request through Fidelity — not through the old provider. Fidelity will send the paperwork to the old provider and handle the movement of funds. Most transfers complete within two to three weeks. This can be repeated for every old HSA account until everything is consolidated in one place.
For those still actively contributing through an employer, a practical approach is to max out the annual HSA contribution within the first couple of pay periods, then transfer most of the balance to Fidelity at once. This minimizes the time money sits idle at the employer’s provider. When doing so, leave enough behind to meet the employer provider’s minimum balance requirement — otherwise the account may be closed or contributions blocked.
One thing to keep in mind — some employer HSA providers charge a transfer-out fee, typically around $25. It is a one-time cost and almost always worth paying to escape ongoing fees and limited investment options.
The Bottom Line
The HSA is one of the most efficient financial tools available to eligible Americans — and one of the most underused. The triple tax advantage is unmatched. The key is treating it as a long-term investment account rather than a medical spending account, paying medical bills out of pocket when possible, and consolidating old accounts into a single low-cost provider like Fidelity. Done right, the HSA becomes a significant asset by retirement.