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What Financial and Investment Advisors Need to Know About HSAs

Adam Berry · September 8, 2023 · 8 min read

financial advisors and hsas

As a financial or investment advisor, your job is to help your clients create the best financial future for themselves and maximize their savings and investments. You can guide them towards lucrative investment vehicles, advise them on where to cut expenses, and help them achieve their long term financial goals. In all the mix of your clients’ assets, one account that shouldn’t be ignored is their Health Savings Account (HSA).

The tax advantages of an HSA, especially in retirement, make it one of the most critical savings and investment accounts a person can maintain. It can also be an account likely to be forgotten if your client changes employers or ceases to be covered by a High Deductible Health Plan (HDHP). In this post we’ll walk you through the key information financial and investment advisors need to know about HSAs and how they can use these accounts to help their clients plan and build their savings for comfortable retirement.

What is an HSA?

An HSA is an account into which participants contribute tax-free money to pay for qualified medical expenses. Not all providers offer the full range of HSA features or enable account holders to maximize their savings. Some function strictly as savings accounts and earn minimal interest on deposits, while others allow the investment of contributions. Here are the basic attributes of the HSA that make it a financially advantageous account for clients to maintain:

  • The account has a triple tax advantage. The money clients contribute is tax-free up to the annual contribution limit, which is set each year by the IRS. When account holders contribute to their HSA with pre-tax contributions, it also lowers their taxable income. HSA account balances grow tax-free, and the money that is used to pay for qualified medical expenses is distributed tax-free as well, regardless of your age at the time of distribution. That means your clients can save up to 37% on medical expenses, depending on their tax bracket. For example, would you rather your client paid $1,000 for an MRI, or $630?

  • Account balances roll over from year to year, building a balance at an average net growth of 25%. This allows your clients to use their HSA to augment their other savings strategies with one that can be used to pay for a medical expense, even in retirement.

  • HSAs begin to function like a retirement account once the account holder reaches age 65 with one exception: qualified medical expenses remain tax-free. This is especially helpful, because an individual can expect to pay over $150,000 on health-related expenses in retirement after what’s covered by Medicare. All other distributions from an HSA are taxed at the appropriate income tax rate, which, depending on their retirement income, could come out at a lower tax bracket than when they made the contribution.

  • Your clients own these accounts and can never lose access to their savings, regardless of whether or not they are still working with the sponsoring employer or covered by an HDHP. It’s true that in order to contribute to an HSA, the account holder must be actively enrolled in an HDHP and that can be their only health insurance coverage. But if they decide to buy different coverage later, they can still use their funds to pay for qualified medical expenses, or resume contributions if they ever elect an HDHP again in the future. As long as they have a balance, those funds can be invested and working for them generating supplemental income for retirement regardless of their health coverage status.

  • They can invest their contributions, ideally growing similar to investments in a 401(k) or IRA. Not all HSA administrators allow contribution investment, and some enforce high minimums that must be achieved before investment is allowed. But, if your client has an HSA like Lively’s, with low or no minimums required, they can invest as much of their money as possible so they can build their medical nest egg faster.

  • Clients can use these accounts to pay for expenses for themselves, their spouses and their tax dependents, regardless of whether they are also covered under the same HDHP as your client.

How HSAs are an essential part of a wealth building strategy

The way HSAs function allows clients to take advantage of favorable tax rules to augment their retirement savings with an account that helps them save money on medical expenses while they build their nest egg for the future. Here’s how HSAs help clients build true wealth:

  1. HSAs help clients save money now and later. Since contributions are tax-free, they can help lower clients' income tax burden now while also saving them money on the medical expenses they pay for using their contributions. Clients also save money by buying HDHP insurance coverage since the premiums for these types of plans tend to be less expensive than traditional copay plans. In addition, clients can use their HSA money to pay for medical expenses in retirement tax-free. The average couple retiring today is expected to pay an average of $315,000 in medical expenses in retirement. The ability to pay those tax-free is significant

  2. HSAs can augment other retirement accounts when contributions are maxed out. All tax-advantaged accounts have an IRS-imposed annual contribution limit, so if your clients are bumping up against those ceilings and are looking for another savings vehicle (that also has tax advantages), an HSA can be a valuable option.

  3. The rollover and triple-tax advantages allow clients to reap greater returns due to compound interest, especially if they can invest their contributions.

  4. HSAs allow for efficient use of retirement funds. By having an HSA on hand to pay for qualified medical expenses tax-free (but doesn’t have to be used for that purpose once they reach age 65), gives clients both stability and flexibility. In addition, if clients choose to maximize their HSA contributions and pay for medical expenses out of pocket while saving their receipts, they can reimburse themselves at any point in the future, including in retirement. This enables them to invest the maximum of their HSA funds. Lively offers account holders a digital receipt storage feature, so need to worry about losing receipts.

Not all HSA providers offer equal benefits

When advising clients as to the right HSA to participate in, here are some of the things you should look for:

  1. Fees. Just like with other retirement accounts like 401(k)s, high fees can significantly cut into clients’ savings and minimize the effect of compounding. This hamstrings your clients’ ability to build the medical safety net they want and need. The types of fees you should be wary of are administrative or maintenance fees, investment fees, research fees, debit card fees, statement fees, and transaction fees. Not every HSA administrator charges these fees, so look for one with low to no added fees to ensure your clients are reaping the rewards of saving. Lively has no fees for individual account holders.

  2. Ability to invest. The HSA administrator should make investing their contributions simple to find, easy to understand, facilitate API funds flows, inexpensive rates, and have multiple investment options so your clients have the flexibility to choose the right investments for their personal situation.

  3. Native mobile apps and online dashboards for easy account management. In order for your clients to get the most out of their HSA, they must be engaged with the account. HSA advisors that make account management easy, and dare we say, fun with clear dashboards and a mobile app, tend to have higher engagement numbers than advisors who don’t.

  4. The ability for your clients to electronically roll over or transfer their HSA from a previous employer or advisor. We don’t have to tell you the benefits of having your money in one place. But HSAs are often the “forgotten account” that’s left with a previous employer’s administrator while a new one is opened via a new employer. By having multiple accounts open, clients will be paying more fees for the same services, which will eat into their savings. In addition, they might not have the same investment opportunities with their old HSA administrator, or their accounts could be invested in some of the same funds, which is an inefficient use of their money. Encourage your clients to consolidate their HSAs into one place to take maximum advantage of high quality investments, low fees and the compounding effect of time plus investment growth.

  5. The ability for advisors to manage the investment assets of the account holders. If you typically manage your clients’ other investments, it could be more efficient for you (and beneficial for your clients) if you also managed the investments in their HSA.

  6. Knowledgeable, responsive customer support and tailored, easy-to-access HSA education so that clients get the most out of their accounts. Lively offers dedicated, top-rated customer service via email, phone, and live chat, as well as extensive resources so our customers get the support they need.

As a financial or investment advisor, you should consider the HSA a valuable tool to helping your clients achieve real wealth. It helps them to save money today and in retirement, it provides a tax-efficient investment vehicle and allows them to augment the retirement savings accounts they’re already maxing out. For questions about how Lively’s HSA can help your clients improve their financial picture, reach out today.

Adam Berry

Adam Berry

Adam Berry oversees Lively’s Financial Institution Partnerships channel and works with banks across the country to develop and implement HSA product solutions. Over the last 20 years, Adam has gained a significant amount of HSA experience working for national TPAs and creating HSA programs within brick-and-mortar regional banks. HSAs are a personal passion of Adam’s, and he specializes in bringing entities together to discuss transparent, unique, and innovative solutions that result in a better way to do business, increase revenue for Lively’s banking partners, and improve the lives of their mutual customers.

piggy bank on pink background


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A Health Savings Account (HSA) and Healthcare Flexible Spending Account (FSA) provide up to 30% savings on out-of-pocket healthcare expenses. That’s good news. Except you can’t contribute to an HSA and Healthcare FSA at the same time. So what if your employer offers both benefits? How do you choose which account type is best for you? Let’s explore the advantages of each to help you decide which wins in HSA vs FSA.

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Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.



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