HSA Strategy (Part 3)

Today I plan to wind up discussion of Health Savings Accounts (HSA) prior to deliberation over how to manage my own. Please remember this is for educational purposes only.

I see several good reasons to have an HSA for those fitting the suitability profile described in the fifth paragraph here. HSAs allow for delayed reimbursement: pay now, save the receipts, and reimburse oneself in the future thereby allowing more time for tax-free growth. Although contributions are out-of-pocket funds that could otherwise be used elsewhere, the bulleted list here for what does qualify is extensive. Odds are one will find plenty on which to spend HSA funds unless precluded by sudden death at a relatively young age.

Most HSA providers allow investment in stocks, mutual funds, or ETFs once a minimum threshold (ranging from $2,000 down to $0) is reached.

A final benefit to having an HSA is its function as a retirement hedge. Flexible spending accounts [owned by employer] carry “use-it-or-lose-it” [most commonly by year-end or final day of employment] risk. HSA funds belong to the individual, never expire, will roll over at year-end, and will remain after job change or retirement. HSAs also have a built-in safety net should one reach retirement with a large balance: opportunity to use the funds for non-qualified healthcare expenses while still being taxed like a traditional IRA (advantaged at tax-deferred just not as advantageous as tax-free). Another retirement hedge is the triple tax advantage (see numbered list) making HSAs widely considered to be the most tax-efficient retirement vehicle available in the United States. Finally, HSAs hedge against outliving other retirement assets by having no required minimum distributions (and tax-free passage after death to surviving spouse).

In thinking about the HSA as a tool to cover personal health expenses forevermore, I wondered how big an HSA could possibly get or how much they are worth on average.

Per GoogleAI, the average HSA balance rose to approximately $3,997 by mid-2025 with total HSA assets reaching ~$159 billion across 40 million accounts. Specific providers like Lively report higher average balances of $5,457 (up 11% YOY) for their clients. Accounts with invested funds average $22,635—roughly nine times larger than non-investment accounts.

For 2026, average HSA balances are projected to reach $4,400 with total HSA assets rising to $189 billion on 44 million accounts. About 20% of participants (up from 18%) are expected to have invested funds.

IRS sets the maximum allowable contribution for each year. In 2025, these are $4,300 or $8,550 for individuals or families, respectively. Those turning 55 by Dec 31 can contribute an additional $1,000 (“catch-up”). Allowable 2026 contributions for individuals or families increase to $4,400 or $8,750, respectively, with catch-up remaining the same.

I will continue next time with HSA investment planning.