How it works
HSA versus taxable investing measures what the health savings account's triple tax advantage is actually worth in dollars, rather than repeating the phrase like a slogan. The comparison runs identical deposits through two pipelines. In the HSA, the contribution reduces income tax going in, the growth compounds untaxed, and withdrawals for qualified medical expenses are never taxed — the only account in the code that escapes tax at all three doors. In the taxable alternative, the same dollars arrive only after income tax has taken its cut, growth accrues untaxed while unrealized, and capital-gains tax bites the gains when finally realized. Over twenty years at a middle bracket the difference is enormous: the taxable investor hands over tax twice — once on the way in, once on gains — while the HSA investor compounds the full gross contribution. Payroll-deducted contributions add a fourth break most people miss: HSA dollars skip the 7.65% FICA tax entirely. Past sixty-five the penalty on non-medical withdrawals disappears and the account behaves like a traditional IRA, which turns an unused HSA into stealth retirement savings. The strategy that maximizes all of this is simple and counterintuitive: pay current medical bills out of pocket, invest the balance, and bank the receipts.
Formula
HSA = FV(gross contributions) | taxable = FV(after-tax contributions) - gains x capital-gains %
Tips
- Invest the balance — the majority of HSAs sit in cash, forfeiting two-thirds of the triple advantage.
- Pay small bills out of pocket and save receipts; HSA reimbursements can be claimed decades later.
- Contributing via payroll skips FICA too — worth an extra ~7.65% before any growth.
- Zero the state input in California or New Jersey, which tax HSA growth despite federal law.
- After 65 the penalty vanishes and the HSA doubles as a traditional IRA for non-medical draws.
Frequently asked questions
- Is an HSA better than a taxable brokerage account?
- For anyone with qualified medical expenses, structurally yes: deductions going in, untaxed growth and untaxed withdrawals beat a taxable account that is taxed coming in and on gains. At a 24% federal plus 5% state bracket and 7% growth over 20 years, the modeled edge runs into the tens of thousands of dollars.
- What is the HSA triple tax advantage?
- Three layers: contributions are deducted from taxable income, investment growth is never taxed, and withdrawals for qualified medical expenses are tax-free. It is the only account in the US tax code that avoids tax at all three stages — 401(k)s and Roth accounts each get only two.
- Can I use my HSA as a retirement account?
- Effectively yes after 65: the 20% penalty on non-medical withdrawals disappears and distributions are taxed like a traditional IRA. Even better, save receipts now and reimburse decades of old medical bills tax-free in retirement.
- How much can I contribute to an HSA in 2026?
- Individual coverage allows roughly $4,300-4,400 and family coverage roughly $8,600-8,750, with a $1,000 catch-up from age 55; limits adjust annually. Check the current IRS figure — the calculator accepts whatever your limit actually is.
- What happens to my HSA if I never get sick?
- It keeps compounding. Unlike FSAs there is no use-it-or-lose-it clock; the balance rolls forever. Decades of receipts become a withdrawable war chest, and after 65 any remaining balance works like traditional retirement money, taxed only as income on non-medical use.