Investors can maximize their tax savings with health savings accounts, according to an expert. Here's how to make the most of this unique opportunity.

• According to Empower, a financial services company, about half of U.S. adults lack an understanding of how Health Savings Accounts work.
• In order to be eligible for a health savings account, one must have enrollment in a high-deductible health plan (HDHP).
• According to the MetLife U.S. Employee Benefits Trends Study, only about one-third (34%) of employees with access to an HSA have enrolled in the benefit.

Many Americans are unaware of how health savings accounts work, despite their popularity as a tax-advantaged investment option in the workplace.

In 2023, approximately 26 million individuals had Health Savings Accounts (HSAs), according to Devenir, a Minneapolis-based research and investment firm. By June 2023, assets in these accounts totaled about $137 billion and are projected to reach $175 billion by the end of 2026.

Todd Katz, executive vice president of group benefits at MetLife, stated that there is definitely growth in the number of people who sign up. This growth has been fueled by strong market performance, which has also led to an increase in investments in HSA accounts, helping to boost balances.

A survey by Empower found that 50% of U.S. adults do not understand how HSA's work. Meanwhile, only 34% of employees with access to an HSA have enrolled in the benefit, and just 24% of those who have enrolled have funded their accounts, according to MetLife's U.S. Employee Benefits Trends Study conducted in September 2024.

Christine Benz, director of personal finance and retirement planning at Morningstar, stated that HSA benefits are "unmatched, really, relative to Roth IRAs or 401(k)s." "You just don't see tax benefits like that."

Here's what to know about HSAs, and how to take advantage:

Tax benefits of health savings accounts

Health Savings Accounts (HSAs) are tax-favored accounts for healthcare expenses. The funds accumulate year after year and remain with you even if you switch jobs. Additionally, HSA funds can be invested.

To be eligible to contribute to a health savings account in 2025, an individual must be enrolled in a high-deductible health plan (HDHP) with an annual deductible of at least $1,650 for an individual or $3,300 for a family, and the maximum out-of-pocket expenses for an HDHP are $8,300 for an individual or $16,600 for a family.

HSAs provide three ways to reduce tax liability through saving, spending, and investment accounts.

"According to Benz, author of "How to Retire," you can put pre-tax dollars into your health savings account without being taxed as long as the money stays within the HSA. Additionally, if you withdraw the funds and use them for qualified health care expenses, those funds are also not taxed, providing a tax break throughout the process."

In 2025, eligible individuals can contribute up to $4,300 or $8,550 to a HSA for family coverage.

'You need to run the numbers'

Although high-deductible health plans may have lower monthly premiums, many people may still struggle to cover the deductible on a large medical bill.

To maximize the tax benefits of an HSA, it is recommended to pay for current healthcare expenses out-of-pocket, allowing the HSA funds to grow for future use. However, this can be challenging.

If you withdraw money from your HSA for non-medical expenses, you will be subject to federal income tax and a 20% penalty, except for those aged 65 and above who will only pay income tax.

Experts advise taking time to evaluate the advantages and disadvantages of the alternatives before making a decision.

Experts suggest that it may be beneficial to analyze the data before selecting a health plan, despite the fact that 91% of working Americans choose the same plan year after year, according to a new report from Voya Financial.

If you frequently visit the doctor, you're likely to meet your deductible, so you may prefer a copay plan. However, it's crucial to calculate the costs before making a decision, advised Carolyn McClanahan, a physician and CFP in Jacksonville, Florida, who is a member of CNBC's Financial Advisor Council.

According to Benz, the success of using a high deductible plan relies heavily on utilizing a health savings account.

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