For people eligible to contribute to a Health Savings Account, an HSA can serve a broader purpose than paying current medical bills. Contributions may receive favorable federal tax treatment, unused balances can remain invested from year to year, and qualified medical withdrawals can remain tax-free in retirement. During Open Enrollment, the HSA deserves consideration alongside the health plan itself.
Why Consider an HSA During Open Enrollment?
An HSA is available only to eligible individuals covered by a qualifying High-Deductible Health Plan, or HDHP, and other eligibility requirements apply.
For 2026, the HSA contribution limit is $4,400 for self-only coverage and $8,750 for family coverage. Eligible individuals age 55 and older may generally contribute an additional $1,000 catch-up contribution.
That can make the HSA relevant to more than annual healthcare spending.
Unlike a health FSA, an HSA balance generally remains in the account from year to year, and earnings inside the account are not included in federal income while held there.
For households that can afford to pay some current medical expenses from cash flow, that creates another planning question:
Should some HSA dollars remain invested for future healthcare and retirement expenses instead?
1. How Does the HSA’s Triple Tax Advantage Work?
HSAs have a combination of federal tax benefits that differs from most retirement accounts.
Generally:
- Eligible personal contributions may be federally deductible
- Employer contributions and qualifying payroll contributions may be excluded from federal income
- Earnings can accumulate without current federal income tax
- Withdrawals used for qualified medical expenses can be federally tax-free
The IRS notes that employer HSA contributions generally are not included in income, while eligible contributions made by an individual may generally be deductible. Amounts remaining in the account carry forward and earnings are generally not included in income while held in the HSA.
Compare that with two common retirement-account structures.
Traditional 401(k) contributions can provide current tax deferral, but taxable distributions generally create ordinary income later.
Roth contributions generally use after-tax dollars, while qualified withdrawals can be tax-free.
An HSA can potentially combine a current federal tax benefit with tax-deferred growth and tax-free qualified medical withdrawals.
That does not automatically make the HSA the right place for every available dollar. Health-plan premiums, deductibles, expected medical needs, cash reserves, and other savings goals should also be considered.
2. Can You Leave HSA Funds Invested and Reimburse Yourself Later?
Potentially.
HSAs do not generally require the account holder to withdraw money in the same year a qualified medical expense occurs.
IRS guidance states that there is no time limit on when an HSA distribution must occur to reimburse a qualified medical expense, provided the expense was incurred after the HSA was established and the required records are maintained.
That creates what is sometimes informally called the “shoebox strategy.”
Instead of immediately reimbursing a $1,000 qualified medical bill from the HSA, an eligible account holder might:
- Pay the expense from other available cash.
- Keep documentation showing the qualified expense.
- Leave the HSA balance invested.
- Reimburse that expense from the HSA in a later year.
The potential benefit is additional time for the HSA assets to remain invested.
But recordkeeping matters.
To support a later federally tax-free reimbursement, taxpayers should maintain documentation showing that:
- The expense qualified for HSA treatment
- It occurred after the HSA was established
- It was not previously reimbursed from another source
- It was not previously taken as an itemized medical deduction
The strategy therefore requires more than keeping an old credit-card statement. A consistent digital recordkeeping system can become important over a long period.
3. What Happens to an HSA After Age 65?
The rules become more flexible after age 65.
Before age 65, a distribution that is not used for qualified medical expenses is generally subject to regular income tax plus an additional 20% tax.
After age 65, the additional 20% tax no longer applies. A nonqualified distribution remains taxable, but it can be withdrawn without that additional penalty.
That gives the HSA characteristics similar to a traditional retirement account for nonmedical spending later in life.
Qualified medical distributions can still remain federally tax-free.
Certain Medicare premiums can also qualify for federally tax-free HSA distributions after age 65, including eligible Medicare and other healthcare coverage. Medigap premiums generally do not qualify.
There is another important distinction:
Once an individual enrolls in Medicare, they generally can no longer contribute to an HSA. Existing HSA balances, however, can still be used under the applicable distribution rules.
Should Everyone Choose the HSA-Eligible Health Plan?
No.
The tax benefits of an HSA do not automatically make an HDHP the better health-insurance option.
During Open Enrollment, consider reviewing:
- Annual premiums
- Deductible
- Out-of-pocket maximum
- Expected prescriptions
- Recurring medical care
- Family healthcare needs
- Employer HSA contributions
- Available cash reserves
- Ability to absorb an unexpected medical bill
- HSA investment options and fees
Someone expecting significant healthcare expenses may reach a different conclusion than someone with relatively low anticipated medical costs.
The health-plan decision should come first. The tax strategy should support that decision rather than replace it.
A Practical Open Enrollment HSA Checklist
Before making a 2027 benefits election, consider confirming:
- Whether the health plan is HSA-eligible
- Whether other coverage affects HSA eligibility
- The employer’s HSA contribution, if any
- Your planned employee contribution
- Whether the age-55 catch-up applies
- Current HSA investment options
- Current and expected healthcare expenses
- Whether you can reasonably pay some expenses outside the HSA
- How medical receipts will be retained
- How the HSA fits alongside 401(k), IRA, and other savings
An HSA can be a valuable long-term planning tool, but the appropriate approach depends on healthcare needs, cash flow, and the broader financial plan.
How Does Falcon Wealth Planning Approach Open Enrollment?
Falcon Wealth Planning is a Fee-Only fiduciary Registered Investment Adviser. Our CFP® professionals and CPAs work with clients to coordinate employer benefits with tax planning, retirement planning, investment management, and cash-flow decisions.
Open Enrollment can provide an opportunity to evaluate how healthcare benefits fit into the broader financial plan rather than making each election independently.
Frequently Asked Questions
What is the HSA contribution limit for 2026?
The 2026 limit is $4,400 for self-only HDHP coverage and $8,750 for family coverage. Eligible individuals age 55 and older may generally contribute an additional $1,000.
Do HSA funds expire at the end of the year?
No. HSA balances generally carry forward from year to year.
Can I reimburse myself years later for a medical bill?
Under current IRS guidance, there is no general time limit, provided the expense was incurred after the HSA was established and the required documentation is retained.
What happens to HSA withdrawals after age 65?
Qualified medical withdrawals can remain federally tax-free. Nonmedical withdrawals are generally taxable, but the additional 20% tax no longer applies after age 65.
Schedule a Complimentary Open Enrollment Consultation
Employer benefits can influence taxes, healthcare costs, retirement savings, and cash flow at the same time. A complimentary Open Enrollment consultation can help determine whether Falcon Wealth Planning’s coordinated fee-only fiduciary approach may be appropriate for reviewing your benefits alongside the rest of your financial plan.
Disclosure
This article is provided for general educational and informational purposes only and does not constitute individualized investment, tax, legal, healthcare, or employee-benefits advice. HSA eligibility, contribution limits, qualified expenses, employer benefits, and health-plan provisions depend on individual circumstances and applicable plan terms. Tax treatment of HSAs varies at the state level; certain states (including California and New Jersey) do not conform to federal HSA tax rules. Consult appropriately qualified financial, tax, healthcare, and benefits professionals before implementing any strategy. Falcon Wealth Planning, LLC is a fee-only fiduciary Registered Investment Adviser.
