Here's how to make the most of your 'triple-tax-free' account, advisor says, as most employees don't utilize it.

• In 2024, the percentage of participants who invested their health savings account balance decreased slightly from the previous year, according to a survey by the Plan Sponsor Council of America.
• Experts suggest that those employees might be forfeiting their HSA's triple-tax benefits.
• Advisors often suggest that clients invest their HSA funds for the long term to create a retirement savings account for healthcare expenses.

Although many employees have a health savings account (HSA) that provides tax benefits for saving for medical expenses, experts suggest that most are not taking advantage of the long-term benefits of HSAs.

A survey conducted by the Plan Sponsor Council of America in November 2024 found that 60% more companies offer investment options for HSA contributions compared to the previous year, with a total of over 500 employers surveyed in the summer of 2024.

The survey found that only 18% of participants invested their HSA balance, a slight decrease from the previous year.

"HSAs are the only triple-tax-free account in America," said certified financial planner Ted Jenkin, founder and CEO of oXYGen Financial in Atlanta.

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To contribute to a health savings account, you must have an eligible high-deductible health plan, as advisors recommend investing the funds long term rather than spending them on yearly medical expenses.

According to a survey by the Plan Sponsor Council of America, about 66% of employees chose an HSA-qualifying health plan when given the option.

The best health insurance plan for your family depends on your anticipated medical expenses for the upcoming year, according to experts. Generally, high-deductible plans offer lower premiums but higher out-of-pocket expenses.

HSAs can look like a 'health 401(K)'

Qualified medical expenses can be withdrawn tax-free from HSAs, which offer an upfront deduction on contributions and tax-free growth.

"Jenkin, a member of CNBC's Financial Advisor Council, stated that one way to manage the high cost of healthcare is by investing it wisely, making it appear like a health 401(k)."

According to a Fidelity report released in August, a 65-year-old retiring today can expect to spend an average of $165,000 in health and medical expenses through retirement, up nearly 5% from 2023.

The estimate doesn't factor in the cost of long-term care, which can be significantly higher depending on the individual's needs.

Why employees don't use HSAs for long-term savings

According to Hattie Greenan, director of research and communications for the Plan Sponsor Council of America, there are several reasons why most employees aren't investing their HSA balances.

"There is a great deal of uncertainty surrounding Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs), particularly with regards to their operation and distinctions," she remarked.

Although both FSA and HSA accounts provide tax advantages, your FSA funds must be used annually, while HSA funds can be saved for several years. Additionally, your HSA balance is transferable when switching jobs.

Despite the fact that many employees cannot afford to cover their medical costs annually, their HSA balance continues to grow, Greenan stated.