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How HSAs Appeal More To High-Income Earners

How HSAs Appeal More To High-Income Earners

What a Health Savings Account (HSA) is and how it may make sense for higher-income earners – and not-so-much for lower-income earners.

Do you have a Health Savings Account (HSA)? 

A Health Savings Account, or HSA, is a unique savings account with a triple tax benefit. First, contributions reduce taxable income. Second, growth within the account is tax-free if withdrawals are made for qualified expenses. And third, qualified withdrawals (withdrawals used for medical expenses) are also tax-free. And the HSA may be uniquely helpful to a higher-income earner.  

How An HSA Works

To be eligible to contribute to an HSA, the taxpayer must be enrolled a high-deductible health plan, defined as a plan with a deductible of at least $1,300 (individual) or $2,600 (family), by December 1st of 2017 (contribution amounts are prorated for partial year eligible taxpayers). A single individual can deposit up to $3,400 to an HSA in 2017. Taxpayers age 55 and older can make an additional catch-up contribution of $1,000 per year. For a family, the contribution limit is set at $6,750 for 2017

Here’s a helpful table that shows the relevant contributions, limits, deductibles, and more from the Society For Human Resource Management:


HSA & HDHP Table from

Unlike Flexible Spending Accounts, HSAs do not have a “use-it-or-lose-it” feature. The account belongs to the taxpayer if he/she does not use the funds before the end of the calendar year. Funds carry over from year to year and can even be invested, making HSAs a great savings vehicle for increasingly high medical bills that may occur in future years.

A bonus benefit is that after the age of 65, the account owner may take distributions from the HSA for any purpose, health-related or not; he or she will pay regular income tax, but with no penalty.

Advantages of HSAs

HSAs often benefit older taxpayers. A typical couple turning 65 today will pay an average of $220,000 in out-of-pocket medical costs before they die, according to a 2013 study by Fidelity Benefits Consulting. That’s a big medical bill that will come due for many people.  

However, according to the Employee Benefits Research Institute (EBRI), a 55-year old taxpayer who contributes the maximum amount to an HSA every year until age 65 could see a balance of $60,000 from $42,000 in contributions, assuming a 5% rate of return. 

Higher-Income Earners Benefit Most

HSAs typically work best for those with high incomes. As with any tax-advantaged investment strategy, you need to be in a high tax brackets to save more money with a tax deduction.

Second, making maximum contributions requires deeper pockets. HSAs work with a high-deductible health insurance plan, remember. That means you need the ability to pay out-of-pocket at least $1,300 (and often a lot more, depending on the policy) in annual medical bills – before the insurance kicks in.

Lower-Income Earners Benefit Less

HSAs are not big money-savers for people in lower income brackets. Low-income families usually don’t have extra cash to tuck away in an HSA. 

Middle-income families will also not likely benefit by not going the high-deductible, HSA route. They just can’t save enough though an HSA to make a big savings difference in the long-run. Because HSAs are usually the last savings vehicles to get funded after 401(k)s and IRAs.

The Bottom Line: HSAs Are Helpful In The Right Place

A healthy person in any income bracket who needs little or no medical care during the year will always come out ahead by choosing the overall cheaper plan and banking the difference.

But you probably shouldn’t start with maxing out an HSA. Financial planners generally agree that individuals should first max out 401(k) plan and IRA contributions for the year before they start funding an HSA, but you will need to consult someone who can advise you on your specific situation.

To speak with an experienced advisor at Republic Wealth Advisors about whether contributing to an HSA is appropriate for your situation, please reach out today. We’re happy to walk through how an HSA may make sense for you.



IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.


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