Nearly Half of HSA Users Are Making This Costly Mistake
More Americans are contributing to health savings accounts (HSAs), but many may be missing one of the biggest benefits these tax-advantaged accounts offer.
A new Bank of America report found that 82% of employees with access to an HSA are contributing to one, up from 71% in 2025. However, only 12% say they are using their HSA as a long-term savings tool. Meanwhile, nearly half of HSA participants make regular withdrawals from their accounts.
See for Yourself: Bad Habits That Hinder Wealth Even When Earning 6-Figure Income
Keep Learning: 7 Clever Ways Retirees Are Earning Up to $1K Per Month From Home
Here’s why this can be a mistake.
Why Withdrawing From Your HSA Could Be a Costly Mistake
For many Americans, an HSA can be more than just a way to pay current medical expenses. Experts say these accounts are often most valuable when used as a long-term savings and investment vehicle to help cover healthcare costs in retirement.
"Preparing for long-term healthcare costs is important, especially considering that increases in the cost of healthcare tend to outpace inflation and that many employees tend to underestimate healthcare costs in retirement," said Stacy Bucchere, managing director and head of workplace benefits client management at Bank of America.
"Investing in an HSA can help you get a triple-tax advantage — contributing, growing and withdrawing tax-free — and managing growing healthcare costs through a flexible retirement savings vehicle."
Many Workers Aren't Taking Advantage of HSA Investing
While many employees now use HSAs, only 56% of those offered these accounts feel they have a strong understanding of their features. The data shows that 57% of workers are not investing in their HSA balances, and 1 in 4 of those workers say that’s because they didn’t even know it was an option.
"Improved education from employers could help more employees understand their options and choose to save those funds for future costs," Bucchere said.
Should You Spend or Save Your HSA Money?
HSA funds can be spent on eligible medical expenses, saved for future healthcare needs or invested for long-term growth. Which option makes the most sense depends on an individual's financial situation, current medical costs and overall savings goals.
Still, experts generally recommend preserving HSA funds whenever possible.
"Although decisions about withdrawing funds depend on a range of personal factors, like an employee’s overall financial health and the extent of the medical costs at hand, employees should generally aim to keep HSA funds saved unless they face significant medical costs that they are unable to cover using other funds," Bucchere said.
"If you do need to draw from your HSA for an unforeseen medical cost, eligible expenses can be paid for with your HSA funds without a tax penalty."
For workers who can afford to pay routine healthcare costs out of pocket, leaving HSA funds invested may help maximize the account's long-term tax advantages and provide a larger financial cushion for healthcare expenses in retirement.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion: