This ‘triple-tax-free’ account is a huge win for American workers — but few use it properly. Here’s a simple way to save and grow cash in 2025

What is an HSA and how does it work?

An HSA is a savings account that lets you set aside pre-tax dollars to pay for qualified medical expenses, including doctor visits, medications, dental care, and vision services. But the real magic of an HSA lies in its tax advantages: contributions are tax-deductible, the funds grow tax-free, and withdrawals for qualified expenses are tax-free, too. HSAs are “the only triple-tax-free account in America,” said certified financial planner Ted Jenkin, founder and CEO of oXYGen Financial in Atlanta, to CNBC.

For 2025, the IRS raised the contribution limits to $4,300 for individuals and $8,550 for families. If you’re 55 or older, you can contribute an additional $1,000 as a catch-up.

To qualify for an HSA, you must be enrolled in a high-deductible health plan (HDHP), which typically comes with lower premiums but higher out-of-pocket costs. Funds in your HSA roll over year to year, and many accounts allow you to invest the balance, turning it into a powerful tool for building wealth.

However, as Morningstar points out, “Because at least some HSA money may be needed to cover sudden medical expenses, it makes sense to limit aggressive investments to a small portion of holdings ... If participants need to use that money during downturns, they can lock in a loss of principal that could have grown in the future.”

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Why are HSAs triple tax-free?

Here’s how the triple tax break works:

• Contributions are tax-deductible: For example, if you contribute $4,000 to your HSA, your taxable income decreases by that amount.
• Tax-free growth: Funds in the account grow tax-free, whether through interest or investment gains.
• Tax-free withdrawals: Using HSA money for qualified medical expenses is completely tax-free, allowing you to use the money without penalty or taxes.

Why are Americans missing out?

A separate 2024 study by Morningstar concluded that transparency and fees likely contribute to employees’ hesitation to invest their HSA funds. Additionally, many HSA providers impose minimum account balance requirements before participants can invest.

Education is also a challenge, as Morningstar found employers often fall short in informing workers about the full spectrum of HSA benefits. Many employees don’t realize that unused funds roll over year after year or that investing their HSA balance can generate significant tax-free growth, the study found.

Unlike employer-sponsored retirement plans, where automatic enrollment is common, employers can’t automatically enroll eligible employees in HSAs – leaving many unaware of the account’s long-term potential.

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How to maximize your HSA

To unlock the full potential of your HSA, start by contributing the maximum amount allowed each year to take full advantage of the tax deduction. Even small, consistent contributions can build up over time.

Once you’ve built a cushion for immediate healthcare needs, consider investing the remaining balance. Many HSA providers offer options like mutual funds or ETFs, which can generate long-term growth. By treating your HSA as a second retirement account, you can create a robust financial safety net for future health care costs.

Save receipts of out-of-pocket spending: IRS rules allow you to reimburse yourself later, even years down the line, for qualified medical expenses incurred while the account was active. Also keep receipts and prescriptions in case of an IRS audit.