For one thing , HSAs help with inflation . “ Contributing $ 7,500 today will allow the taxpayer to deduct this amount from their taxable income ,” says Mallon FitzPatrick , managing director and principal at Robertson Stephens Wealth Management in New York . “ Assuming the $ 7,500 is invested and compounds tax-free at an average of 8 % annually , the initial contribution will grow to approximately $ 75,000 after 30 years .

Historically , healthcare costs have risen by 5.5 % a year , and a $ 7,500 procedure today may cost $ 37,000 in 30 years .”

When an account owner reaches 65 , an HSA is treated the same as a traditional IRA , but with no required minimum distributions . But there ’ s an additional advantage of using these accounts when you ’ re over 65 : You can use the distributions for things other than medical expenses , and those distributions will only be taxed as ordinary income . Before account holders turn 65 , they ’ d have to pay an additional 20 % tax on those payouts , says Isaac Bradley , director of financial planning at Homrich Berg in Atlanta .

“ Because HSAs can be invested in stocks , mutual funds , ETFs , and bonds , there can be significant growth potential over time .” — Thomas Pontius

“ HSAs are a hot topic these days ,” says Nicholas Ockenga , a financial planner with Sentinel Group in Wakefield , Mass . “ Anyone can take advantage , [ but ] wealthy clients just end up being able to take advantage of them more because they can afford to .”

Savings limits on HSAs recently received a big inflation-fueled bump from the federal government . For 2024 , the annual limit for an individual with self-only coverage under a high-deductible health plan will be $ 4,150 , up from $ 3,850 for this year . The annual limitation on deductions for an individual with family coverage under a high-deductible plan is $ 8,300 , up from $ 7,750 in 2023 .

“ The contributions are pretax , the growth in the account is not taxed and the distributions for qualifying medical expenses are also not taxed ,” says Thomas Pontius , financial planner at Kayne Anderson Rudnick in Los Angeles . “ Because HSAs can be invested in stocks , mutual funds , ETFs and bonds , there can be significant growth potential over time .”

According to a Fidelity estimate , the average 65-year-old retired couple would need some $ 315,000 to pay healthcare expenses in retirement in 2023 .

Families with children younger than 26 who aren ’ t claimed as dependents and who are enrolled in their parents ’ high-deductible plan can open an HSA separately and contribute the family maximum , as can the parents , says FitzPatrick , a tactic known as “ supercharging ” an HSA . The parents can also gift funds to the child ’ s account using the annual gift exclusion to avoid taxes .

“ An HSA is the only ( to my knowledge ) triple-tax advantaged vehicle ,” says Brian James , managing partner and director of investments at Ullmann Wealth Partners in Jacksonville Beach , Fla . You can ’ t contribute if you ’ re in Medicare , he says , “ but you can

8 | FINANCIAL ADVISOR MAGAZINE | JULY / AUGUST 2023 WWW . FA-MAG . COM