How Millennials can Maximize Their HSA Benefits in 2024

Historically, those approaching or entering retirement have significantly underestimated their cost of living, particularly when it comes to healthcare. This trend is beginning to change, however, with younger generations getting ahead of future expenses by exploring a wider range of retirement avenues, including health savings accounts (HSAs). According to the 2022 Devenir & HSA Council Demographic Survey, one in five Americans in their 30s had an HSA at the end of 2022. 

Additionally, younger consumers are not just saving to their HSA, they’re also taking advantage of the investing options. The Employee Benefit Research Institute’s (EBRI) Analysis shows how younger generations are becoming power users of HSAs, with Millennials and Gen Z representing 60% of all investment accounts. 

As younger generations continue to embrace HSAs, including Millennials, who make up more than one-third of the current workforce at 39.4%, it’s critical they understand how to maximize HSAs for both short- and long-term goals. 

If you belong to one of these generations, keep reading for how you can maximize your HSA. 

READ: Mapping Out Financial Success with Retirement Planning

How HSAs work

There are many advantages to having an HSA. Begin by familiarizing yourself with the account options so you can maximize your usage. 

Here are some quick facts:

• An HSA is an individually owned, tax-advantaged account. 
• The money you put in can be used for qualified medical expenses at any time, including during retirement.
• The 2024 maximum contribution amount for individuals is $4,150 and $8,300 for family coverage.  
• HSAs have a triple tax advantage: tax-free deposits, earnings, and withdrawals

To open and contribute to an HSA, you must: 

• Be enrolled in a high-deductible health plan (HDHP).
• Not be enrolled in any part of Medicare.
• Not be claimed as a dependent on another’s taxes.
• Not have any other non-permissible health coverage, such as a medical plan other than an HDHP or a flexible spending account (FSA).

During annual enrollment, many employers will offer HSAs, but if yours does not, you can still open one with an HSA provider. Your HSA is tied to you, so your account will stick with you throughout every life stage, with unused funds rolling over each year. 

Using your HSA for saving and investing 

When it comes to getting the most out of your HSA, your young age paired with the ability to start saving early are great assets. 

As mentioned earlier, being intentional about investing within your HSA is a great way to potentially maximize your HSA dollars. Just like your other retirement accounts, strategic allocation can significantly affect your savings — particularly if you intend to earmark some or all these dollars for the long-term.

Your HSA should be viewed as one piece of your overall financial portfolio. Regularly review all the accounts you are actively contributing to, such as your 401(k) and emergency fund, as well as any debt you are currently paying toward your student loans or other financial obligations, to ensure balance and diversity. 

READ: 4 Tips for Tax-Efficient Investing

Spending your HSA correctly

In addition to maximizing your contributions, be sure you understand what is considered a qualified medical expense that your HSA dollars can cover. If you use your HSA for a non-qualified expense, you’ll have to pay ordinary income tax on the withdrawal and will be hit with a penalty fee of 20% of what you took out. 

Some examples of qualified medical expenses include:  

• Your deductible.
• Dental treatments, exams or cleaning costs.
• Prescription drug costs.
• Vision expenses such as contact lenses or glasses.
• Chiropractic or acupuncture fees.
• Hand sanitizer.
• Eye surgery.

You can find a full list of HSA-eligible expenses in the IRS Publication 502. 

Your HSA use changes when your life changes 

As you move through life and your financial goals change, so will the way you utilize your HSA. When you’re in the early stages of being an account holder, you’re likely also just starting on the salary spectrum, so you may be contributing less. You may also be spending more, particularly if you have a family.  As you move further into your career, you may be earning more and can therefore save more in your HSA. Toward the end of your career, you will hopefully be able to take full advantage of the saving and investing opportunities that your HSA provides. Finally, once you retire, you can keep as much of your HSA invested as possible while utilizing it to cover qualified medical expenses.

Your HSA is a lifetime account, and if you start maximizing its benefits at a younger age, it has even more time to grow with you and help meet your ever-changing needs. 

Brian Hutchin is executive vice president and director of UMB Healthcare Services. With more than 25 years of financial industry experience, he is responsible for the overall strategy and management of the Healthcare team, including sales, implementation and relationship management. Additionally, Brian serves as an executive team member for the Institutional Banking division, providing input on the strategic direction of the department and overall growth of the business.