Health savings accounts (HSAs) are an extremely valuable savings tool for workers of all ages, as they let you set aside funds for medical expenses in a tax-advantaged manner. But recent data from the Employee Benefit Research Institute (EBRI) indicates that account holders aren't making the most of their HSAs.

Specifically, the EBRI found that most account holders use their HSA funds to cover near-term medical expenses rather than reserve those funds for expenses later in life, and invest them in the interim. In fact, in 2017, only 5% of HSA participants had unused funds in investments; the majority kept their unused funds in cash.

Female doctor measuring blood pressure on younger male adult

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If you've been neglecting to hold funds in your HSA and invest them, you should know that you're passing up a big opportunity to grow your balance in a tax-free fashion. You're also missing the chance to save money for healthcare purposes for when you might need it the most: retirement.

How HSAs work

The reason so many HSA participants are quick to use up their funds could boil down to a lack of understanding as to how these plans actually work. Though flexible spending accounts (FSAs) require you to deplete your plan balance year after year or risk forfeiting untapped funds, HSA funds don't expire. You can carry them from year to year, or, better yet, carry them into retirement so that when you move to a fixed income and your healthcare costs climb (which often happens to seniors, especially when you account for the numerous out-of-pocket costs incurred under Medicare), you have a dedicated source of money to cover them.

Furthermore, whereas FSA funds can't be invested while they're not in use, HSA funds can. Plus, you won't pay taxes on your investment gains year after year, as is the case with a retirement savings plan like an IRA or 401(k). In fact, HSAs are actually triple tax-advantaged: Contributions go in tax-free, investment gains are tax-free, and withdrawals are tax-free, provided that money is used to pay for qualified medical expenses.

Maximize your HSA

If you're in the habit of only contributing enough money to your HSA to cover your near-term medical expenses, you should know that you're missing out on years of potentially lucrative investment gains. Rather than continue to contribute the bare minimum, aim to put more money into your HSA than you expect to need immediately, and plan on investing the rest. Effective in 2020, you'll have the option to contribute up to $3,550 a year to an HSA as an individual, or up to $7,100 a year as a family. And if you're 55 or older, you'll be allowed an extra $1,000 on top of whichever limits applies to you.

Investing your HSA and carrying funds into your golden years is a great way to help ensure that you have a means of paying your medical expenses when you're older. And given that the average healthy 65-year-old couple retiring this year is expected to spend $387,644 on healthcare in retirement, that's an opportunity you really don't want to pass up.