Managing healthcare costs can be challenging, but a Health Savings Account (HSA) is one way to make saving for future healthcare needs simpler and more affordable. These accounts are designed specifically for healthcare savings and offer several tax-related benefits that can support your financial goals.
In this guide, we’ll break down everything you need to know about HSA plans in Texas, including how they function, who qualifies, and how to maximize their benefits. We’ll also explore strategies on how HSAs can support your broader financial planning needs.
A Health Savings Account (HSA) offers significant tax advantages while assisting you in saving for qualified medical expenses. Your savings grow tax-free, contributions are pre-tax and deductible, and withdrawals for qualified medical expenses are also tax-free. These features make HSAs a popular choice for people looking to manage healthcare expenses wisely.
HSAs don’t come with deadlines for using the funds. Instead, the balance rolls over every year, allowing you to build savings if you don’t need to spend it right away. HSAs are a great choice for healthcare planning in both the short-term and long-term because of this rollover feature.
The IRS sets the annual cap on HSA contributions. These amounts will change based on the age of the account owner and whether the plan is for a family or an individual. Nevertheless, you get to decide how to use the money, whether for immediate medical bills or to let it grow for future healthcare costs.
To contribute to an HSA, you need to meet specific requirements. The most important is having a high-deductible health plan (HDHP), which comes with minimum deductibles. In 2025, individual plans must have at least a $1,650 deductible, while family plans require $3,300.1
To be eligible for an HSA, you also cannot have other overlapping health coverage. This includes standard insurance plans, Medicare, and most FSAs. Your tax status also affects eligibility. You cannot be classified as a dependent on another person’s tax return.
Additionally, after enrolling in Medicare, you can no longer add new funds to your HSA. You can, however, continue to use the money already in the account to cover healthcare costs during retirement.
To qualify for an HSA, you need to be covered by a high-deductible health plan (HDHP). However, there are specific types of additional coverage that won’t affect your eligibility. These exceptions allow for flexibility while meeting the requirements for maintaining an HSA.
The IRS allows the following types of additional coverage without affecting HSA eligibility:2
Insurance for specific risks: Plans covering liabilities from workers’ compensation claims, property use, or tort-related issues are permitted. These types of insurance do not interfere with HSA eligibility.
Coverage for specific conditions or fixed benefits: Policies targeting specific illnesses or diseases are acceptable, as are plans that pay a fixed daily amount during hospital stays. These options focus on narrowly defined benefits that complement an HDHP.
Supplementary coverage options: Insurance for accidents, disability, dental or vision care, long-term care, or telehealth services can be added without disqualifying you from contributing to an HSA. These plans provide additional support for specific needs.
Prescription drug plans: Separate prescription drug coverage is allowed if it doesn’t offer benefits before meeting the HDHP’s required deductible. This ensures that the HDHP remains the primary form of medical coverage.
The IRS allows health FSAs, which are employer-sponsored accounts for covering medical expenses, and Health Reimbursement Arrangements (HRAs), which are fully funded by employers, to work alongside HSAs.2 However, these accounts will come with specific limitations when paired with an HSA.
Here are the HRA and FSA accounts that are compatible with an HSA:
Limited-purpose FSA or HRA: These plans reimburse expenses like dental, vision, or preventive care while leaving other medical costs to the HDHP.
Post-deductible FSA or HRA: These plans only cover medical expenses after the HDHP deductible is reached.
Suspended and Retirement HRAs: A suspended HRA temporarily pauses reimbursements for most medical expenses, except for qualified items like preventive care, allowing HSA contributions to continue. Conversely, a retirement HRA provides coverage for medical costs incurred after retirement, though HSA contributions are no longer permitted at that point.
Please Note: There are also health FSA grace periods. This means that HSA contributions remain valid if the prior year’s FSA balance is zero during the grace period.
The IRS places yearly caps on how much you can deposit into an HSA-qualified account, with amounts determined by your coverage under a high-deductible health plan (HDHP).
In 2025, the maximum contribution is $4,300 for individuals and $8,550 for families. Employer contributions are included in these totals, so it’s important to account for that when calculating how much you can add.3
For those aged 55 and older, there’s an option to contribute an extra $1,000 annually as a catch-up.3 This additional allowance can help boost savings during the years leading up to retirement, providing more flexibility for future healthcare costs.
HSAs are specifically designed to help cover a wide variety of healthcare costs. You can use these accounts to pay for qualified medical expenses like doctor visits, prescriptions, dental care, and vision-related services.
Many over-the-counter products are also eligible, making an HSA a flexible tool for routine medical needs. For more information, review the IRS’s comprehensive publication that details what counts as a “qualified expense.”
Before the age of 65, if you withdraw funds from your HSA for non-medical uses, you will be subject to a 20% penalty and pay taxes on the withdrawal. However, after 65, you can use the funds for any purpose, and while non-medical withdrawals are taxable, there’s no penalty.4
An HSA is more than a simple savings account. It can also work as an investment tool, helping your money grow over time. Many health savings account (HSA) providers give you the option to invest in mutual funds, ETFs, or even stocks. This makes it possible to use your HSA for long-term financial growth, not just short-term medical expenses.
One of the biggest advantages is that HSA funds grow tax-free while they’re invested, and withdrawals for qualified medical expense payments are also untaxed. Together with the annual rollover of unused funds, these advantages allow account holders to accumulate a sizable balance over time.
Your investment plan should take into account both your immediate financial needs and your longer-term financial objectives. For short-term needs, low-risk options may make sense. If you’re planning to save for decades, higher-risk investments could offer more growth potential.
Please Note: Remember, there are no penalties associated with withdrawing HSA funds for non-medical expenses after the age of 65. While these withdrawals are taxed as income, this flexibility allows your HSA to function like a traditional IRA once you’re old enough.
Health Savings Accounts (HSAs) offer account holders both significant advantages and potential challenges. You can decide if they’re the best option for your circumstances by taking into account both of these aspects.
HSAs are attractive for both short-term and long-term healthcare savings because of their many advantages. These accounts have tax perks like no other, and the advantages don’t stop there.
Here are the key advantages:
Tax Benefits: Contributions reduce taxable income, funds grow tax-free, and withdrawals for qualified medical expense payments are not taxed. This triple benefit is a feature unique to HSAs.
No Expiration on Funds: Unlike FSAs, HSAs let you carry over unspent money each year, allowing you to build savings over time. This is particularly useful for retirement planning.
Portability: HSAs stay with you, even if you change employers or switch your health insurance plan, providing consistent access to your savings.
Despite the obvious benefits of HSAs, there are a few disadvantages to take into account. These challenges might affect whether an HSA works for your situation.
Here are the main cons:
HDHP Requirement: You need a high-deductible health plan (HDHP) to open an HSA, which may not suit everyone’s medical or financial situation.
Early Non-Medical Withdrawal Penalties: Before age 65, using HSA funds for non-medical expenses comes with a 20% penalty and income tax.
Investment Management: Some find it challenging to decide how to invest HSA funds, especially if they’re unfamiliar with investment strategies or options.
Opening an HSA in Texas is straightforward, but you’ll need to follow a few specific steps to get started. Whether you’re working through an employer or choosing a provider on your own, eligibility and the setup process are key.
Here’s how to get started:
Step 1: Verify that you have an HDHP: First, make sure you have an HDHP. You need to be enrolled in a high-deductible health plan (HDHP) in order to open an HSA. Check with your provider to make sure your plan meets the current IRS requirements for minimum deductibles.
Step 2: Select your HSA provider: If your employer offers an HSA option, this may be the most convenient route. For personal accounts, explore banks, credit unions, or online providers to find one with competitive fees, good interest rates, or investment options.
Step 3: Complete the setup process: Fill out your provider’s forms, link a bank account for contributions, and, if available, choose your preferred investment options.
Step 4: Begin funding your account: Once your HSA is active, start making contributions. Regular deposits, whether through payroll or personal transfers, help you take advantage of the account’s tax benefits and grow your balance.
Please Note: You don’t have to handle this process on your own. A financial advisor can help you verify your HDHP eligibility, choose the right HSA provider, and maximize the tax benefits of your account. They can also assist with integrating your HSA into your overall financial plan and exploring investment options.
Making the most of your HSA requires planning and thoughtful use of your funds. From contributions to reimbursements, each decision can help you grow your balance and stretch your healthcare dollars.
Here are the best ways to maximize the benefits:
Contribute as much as you can: Donate as much as you can. The IRS caps HSA contributions annually. You can maximize the tax advantages of the account and accumulate money for upcoming costs by making contributions up to this cap. If you’re over 55, don’t forget to add the $1,000 catch-up contribution.
Invest funds you don’t need immediately: If you have money left over after covering your current health care expenses, consider investing it. Many providers offer options like mutual funds or ETFs, which allow your balance to grow tax-free over time.
Keep records of expenses for reimbursement: Paying out of pocket for qualified medical expenses? As long as you have receipts, you can pay yourself back later. This flexibility lets you keep your HSA growing while still covering your costs.
Use it as a retirement tool: Healthcare can be a significant cost in retirement. Treating your HSA as a savings vehicle for future medical needs lets you plan ahead while taking advantage of the tax-free benefits. Then, you can start using HSA funds for non-medical expenses after age 65 without penalty.
Health Savings Accounts (HSAs) are often misunderstood. These accounts offer unique advantages, but myths surrounding them can discourage people from exploring their full potential.
The following are some typical misconceptions and their underlying truths:
You must spend HSA funds by year-end: If you don’t use your HSA funds by the end of the year, you don’t lose them. Unlike FSAs, funds in your account carry over every year, allowing you to save for upcoming medical needs or even expenses in retirement.
Contributions to an HSA are prohibited after age 65: It’s only after you enroll in Medicare, which you become eligible for at age 65, that you are no longer able to make contributions to an HSA. However, even after you enroll in Medicare, the money that is already in the HSA is still accessible.
HSAs only benefit people with minimal medical costs: Even if you don’t have high healthcare expenses, HSAs offer valuable tax advantages. They let your contributions grow over time, making them a useful savings tool for future health-related spending.
HSA reimbursements must happen soon after an expense: There’s no deadline for withdrawing funds for qualified medical expenses. As long as the expense was incurred after opening your account, you can claim the amount at any time, provided you keep the receipts.
If an HSA isn’t the right fit or you’re looking for additional options, there are other ways to save for healthcare costs. Here are a few alternatives to consider:
Flexible Spending Accounts (FSAs): FSAs let you set aside pre-tax income for medical expenses. However, the funds typically need to be spent within the same year unless your employer allows a small rollover or grace period.
Health Reimbursement Arrangements (HRAs): Employers finance health reimbursement arrangements (HRAs), which compensate workers for qualified medical costs. While these accounts are tax-free for both employers and employees, they don’t allow personal contributions.
Traditional Savings or Investment Accounts: Though they lack the tax benefits of an HSA, these accounts offer more flexibility for saving and can be used for any expense without restrictions.
Roth IRAs for Retirement Healthcare: After age 59½, Roth IRAs allow tax-free withdrawals, which can help cover healthcare costs during retirement.
Health Savings Accounts (HSAs) are a great way to manage medical costs and save for the future since they provide unparalleled flexibility and tax advantages.
Whether you’re paying for medical costs now or growing your balance for retirement, an HSA can serve as a versatile part of your financial plan. Texans, in particular, gain added advantages since there is no state income tax, making the account’s benefits even more impactful.
Our financial advisory team is here to help you incorporate your HSA into a comprehensive financial strategy. From deciding how much to contribute and exploring investment opportunities to aligning your HSA with other savings tools like IRAs, we work with you to maximize its potential.
Schedule a conversation with us today, and discover how an HSA can strengthen your financial plan while supporting your healthcare needs.
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