I Have Money in an HSA but Won't Touch It. Here's Why

Last year, my family switched over to a high-deductible health insurance plan. And while that wasn't the best thing, since it now has us paying a lot more for medical care, the silver lining was that our new plan renders us eligible to contribute to a health savings account, or HSA.

HSAs are a hybrid savings and investment plan whose main purpose is to cover medical costs. To participate in an HSA this year, your health insurance plan has to have a minimum deductible of $1,500 for self-only coverage and $3,000 for family coverage. It also has to have a maximum out-of-pocket limit of $7,500 for self-only coverage and $15,000 for family coverage.

Meanwhile, over the past few months, I've had to dip into my savings account to cover some larger healthcare expenses, like an orthopedist bill for my daughter and a bill for medical tests I had to undergo. I could've raided my HSA for those expenses. But here's why I didn't.

It's all about enjoying tax-free growth

HSAs offer three different tax breaks. Your contributions go in tax free, and any money you don't need to spend on healthcare right away can be invested in a tax-free manner. HSA withdrawals are also tax free when used for qualified medical expenses.

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Since I like the idea of tax-free growth, I'm motivated to keep my money in my HSA as long as possible. My goal, in fact, is to grow that balance into a large sum for retirement, when I'm more likely to need money to cover medical expenses and my income may be lower due to working less or not working at all.

In fact, last year, Fidelity said that the average 65-year-old couple would need $315,000 to cover their healthcare costs throughout retirement. And since I'm not close to retirement age, that figure is likely to be higher for me due to inflation. So I'd rather leave my HSA untouched as long as possible.

In fact, when I last checked, my HSA balance was around $7,000. Even if I don't add more money to that account, if I keep that balance invested at an average annual 7% return for 25 more years, it will grow into $38,000. That 7% return is also a fairly conservative one seeing as how the stock market's average annual return, as measured by the S&P 500 index, has been 10% before inflation over the past five decades.

An account I want to make the most of

Not only do HSAs let you save for healthcare in a tax-advantaged manner, but once you turn 65, there's no penalty for taking a non-medical withdrawal from an HSA. In that situation, you simply pay taxes on your withdrawal rather than take it tax free, kind of like a traditional IRA.

And that's another reason I'm eager to accumulate as large an HSA balance as possible. Not only do I want more money saved for healthcare purposes in retirement, but I also like that my HSA can serve as a back-up retirement plan of sorts. So I'm trying to do what I can to not take withdrawals from my HSA if I have other funds I can use to cover my near-term medical bills.