Many people treat their HSA like a healthcare checking account.

Money goes in.
Medical bills come up.
The balance gets spent down.

That approach works — but it misses what makes the account powerful.

The biggest value comes from how the account is used.

If you’ve opened an HSA because it came with your health plan, but haven’t been shown how the account fits into your long-term financial strategy, this is for you.

The families who see the most value from their HSA often treat it differently — they allow the account to grow and invest it for future healthcare costs.

This is Jaclyn, the newest member of the Tannery team, and here are five reasons I think you should view it differently.

1. Healthcare Costs Don’t Go Away in Retirement

Healthcare is one of the few expenses most families can reasonably expect later in life.

According to Fidelity’s 2025 retiree healthcare estimate, a 65-year-old retiring today and going on Medicare may spend around $172,500 on healthcare expenses throughout retirement.

But that number doesn’t tell the whole story.

Some broader estimates suggest a retired couple could need at least $350,000 set aside for medical expenses over the course of retirement, depending on healthcare needs and coverage.

And those estimates typically exclude long-term care, which can add significantly more.

Many households don’t initially plan for these costs.

Instead, healthcare expenses later in life often come from whatever account happens to be available at the time — savings, retirement accounts, or current cash flow.

An HSA can create another option.

When used intentionally, it can become a dedicated pool for healthcare expenses later in life.

Healthcare costs are difficult to predict. Preparation is not.

That’s why how the account is used really matters.

2. HSAs Can Be Invested — And That Changes How the Account Works

Many people leave their HSA balance in cash and use it only when medical expenses arise.

They treat it like a checking account, where contributions go in and medical expenses are paid from the balance.

But many HSA providers allow you to invest the funds, similar to a retirement account.

Which means there is another way to think about the account: allow the balance to remain invested and grow over time.

Unlike Flexible Spending Accounts, HSA balances roll over from year to year. There is no “use it or lose it” rule, which allows the account to remain invested and continue growing over time.

When families choose the second approach, the HSA begins to function less like a checking account and more like a long-term healthcare fund.

Over time, that shift can mean the difference between an account that stays a few thousand dollars in size and one that grows into a meaningful resource for future healthcare expenses.

Real World Examples

For example, imagine contributing $3,000 per year to an HSA and investing the funds.

If those contributions averaged roughly 8% annually over 30 years, the account could grow to approximately $370,000, even though only $90,000 was contributed.

The remaining growth comes from compounding. The growth of $280,000 approximately.

Shorter timelines can still benefit from compounding, though the final balance will vary based on contribution levels, time horizon, and investment performance.

Of course, exact results will differ, and investment returns are never guaranteed.

For households that have the ability to cover current medical expenses out of pocket, this shift can make the HSA a much more meaningful part of their long-term planning.

3. You Don’t Have to Reimburse Yourself Right Away

One feature of HSAs that many people don’t realize is how flexible reimbursements can be.

If you incur a qualified medical expense and pay it out of pocket, you can generally reimburse yourself later from your HSA, with two qualifications:

• The expense was incurred after the HSA was set up
• You keep the receipt and documentation (digital is fine)

Some households take advantage of this flexibility by paying medical expenses out of pocket today while allowing their HSA balance to remain invested.

The reimbursement can happen years later if needed.

This approach allows the account to continue compounding while still preserving access to those funds in the future.

Qualified medical expenses paid from an HSA remain tax-free regardless of age.

That means the account functions as a dedicated reserve specifically for healthcare costs, allowing other retirement assets to remain invested or be used for general living expenses.

Policies may vary by provider, so it’s always wise to confirm the process with your specific HSA administrator.

4. HSAs Offer a Rare Tax Advantage

HSAs provide a combination of tax benefits that very few accounts offer together.

First, contributions may reduce your taxable income in the year they are made.

Second, any investments inside the account grow tax-deferred, meaning you are not paying taxes on interest, dividends, or capital gains as the account grows.

And third, withdrawals for qualified medical expenses are generally tax-free.

Most financial accounts offer one or two of these advantages.

HSAs offer all three.

Think back to the earlier example of 30-year contribution and investment:

• $3,000 contributed each year
• 30 years of contributions = $90,000 total invested
• Account value after 30 years at ~8% ≈ $370,000
• Investment growth ≈ $280,000

Because of the way HSAs are structured, that $280,000 in growth can remain untaxed while the account grows, and now there is $370,000 of tax-free money to withdrawal for qualified medical expenses.  

In other words, the compounding we discussed earlier isn’t just investment growth — it’s tax-advantaged growth.

Rather than using retirement accounts that are taxed at your income rate for medical expenses, an HSA allows those costs to be paid with tax-advantaged dollars.

And after age 65, the account becomes even more flexible.

Withdrawals for non-medical expenses are allowed without the 20% penalty. They are simply taxed as ordinary income, similar to a traditional retirement account.

That means even if some funds are not ultimately needed for healthcare, they can still become part of a broader retirement income strategy.

Unlike some retirement accounts, there are no required minimum distributions, which means the account can remain invested indefinitely.

The Beneficiary Caveat

One planning detail many people overlook is how HSAs are treated at death.

If an HSA passes to a spouse, the account becomes the spouse’s HSA and continues to receive the same tax treatment.

If it passes to a non-spouse heir, the entire balance becomes taxable income in the year of inheritance.

That makes the HSA one of the least efficient accounts to leave to children or other beneficiaries.

The planning move is straightforward:

• Name a spouse as primary beneficiary whenever possible.
• Plan to spend the account on healthcare expenses during your lifetime.
• If charitable giving is part of your estate plan, consider designating a nonprofit beneficiary.

Handled intentionally, the account can still serve its purpose without creating an unnecessary tax event for heirs.

5. Business Owners Can Also Take Advantage (Though They Face Different Contribution Rules)

For business owners, HSA contributions can be handled differently depending on the structure of the business.

S-Corporation Owners

Many S-corporation owners are surprised to learn that HSA contributions made by the business are usually treated as taxable compensation if they own more than 2% of the company.

However:

• The contribution remains deductible to the business
• The shareholder can typically claim the HSA deduction on their personal return

This structure often surprises business owners because the contribution appears as income on the shareholder’s W-2 even though the business receives the deduction.

It’s also the kind of detail that rarely comes up during routine tax preparation unless someone is actively reviewing how the contribution is recorded.

If your CPA hasn’t explained how your HSA contributions are handled at the entity level, it may be worth asking.

Sole Proprietors

Sole proprietors cannot deduct HSA contributions directly as a business expense.

Instead, the deduction appears on the individual’s personal tax return.

The tax outcome can still be favorable, but the accounting path is different.

For professionals operating through closely held businesses, understanding these distinctions helps ensure the deduction is handled correctly and not overlooked.

The Bottom Line

If you already have access to an HSA through a High Deductible Health Plan, a few simple adjustments can dramatically change how the account functions over time.

Start with the basics:

• Contribute consistently, ideally up to the annual limit when possible.
• Invest the balance rather than leaving it entirely in cash.
• Pay smaller medical expenses out of pocket when practical.
• Keep digital copies of qualified medical receipts.
• Treat the account as a long-term planning tool rather than a spending account.

None of these steps are complicated.

The difference comes from recognizing what the account actually is.

Most people see a healthcare account attached to their insurance plan.
In reality, the HSA is a tax structure that happens to be connected to healthcare.

Used intentionally, it becomes one of the most efficient structures in the tax code — a flexible, compounding reserve built specifically for one of the few expenses no family avoids.

Often the difference comes down to a simple shift:

From using the HSA as a medical checking account
to using it as a long-term planning tool.

Healthcare expenses are inevitable.
Tax drag is not.