If you have a health savings account (HSA), it’s completely up to you when (and how much) you invest in it, as well as how long you avoid dipping into it. For example, since health-related issues become more common in later life, and HSAs grow over time, you can benefit by waiting until old age to utilize your savings account. You might decide at particular times that you want to stop saving, sometimes out of financial necessity. However, there could be other times when you decide to spend your HSA instead of saving it. Here’s what happens when you stop saving. 

You Might Miss Out on Tax-Free Benefits

When you use HSA funds for any qualified medical expenses, you won’t need to pay any taxes on those funds. The money you put into your account and the withdrawals you make for qualified for expenses will always be tax-free. The tax advantages of an HSA, therefore, create a compelling reason to save in your HSA.

You just want to save enough so that you can maximize your triple tax savings. The three tax benefits of HSAs are as follows: your contributions reduce your taxable income, any investment growth in your account is tax-free, and qualified withdrawals are tax-free. You can maximize these benefits by maxing out your annual HSA contribution. 

It’s Important to Think About the Long-Term

It’s natural to just think of your current health needs or perhaps your short-term needs, such as any medical treatments you will likely need in the near future. Nevertheless, it’s crucial to think about your health care costs in retirement, too, and this is where an HSA proves to be immensely useful. 

Consider that, in old age, your health care costs could be anywhere from $144,000 to $163,000 if you’re single, and around $301,000 if you’re married. So, the sooner you start saving in your HSA, and prioritize saving over spending, the better chance you’ll have of being able to cover all of your medical needs in retirement, without needing to worry about covering any unexpected costs.

Of course, if you stop saving in your HSA, without thinking about these long-term concerns, there is the risk that you may struggle to cover expected and unexpected medical costs. If you think of saving in an HSA in terms of benefits and risks, it is often the case that stopping saving entails greater risks and fewer benefits than continuing to save.

Think of Your HSA as an Investment Tool

If you decide to stop saving your HSA, you won’t be able to make the most out of your HSA as an investment tool. By investing your money into your HSA, you’ll have the chance to grow your account over the long term. This compounding is also tax-free. In addition, you can still access the funds in your account whenever you need to cover current medical expenses. 

The long game should be faithfully contributing to an HSA over 20 years. In this way, you could contribute as much as $75,000 to $140,000 (single or family coverage, respectively), and over that time, investment returns could mean you double that amount (assuming an average annual 5% gain). 

Even if You Can’t Save Now, You Can Still Work Toward the Long Game

Not being in a position to save doesn’t mean you can’t enjoy the benefits of an HSA. If you can’t implement an HSA saver strategy currently, with planning and diligence, you can still commit yourself to take steps to get there. This might mean starting small and bumping up your HSA contributions only slightly. Or it could mean starting to pay for smaller qualified expenses out of pocket, such as low-cost prescriptions. 

Sometimes, Spending and Not Saving is the Only Option (and Still a Beneficial One)

As already mentioned, sometimes it is necessary to spend the money in your HSA rather than keep it there. Indeed, most HSA owners are spenders, with a large proportion spending all or most of their HSA funds every year on health care expenses. Sure, this might mean people are missing out on the potential long-term growth of their accounts, but they are still benefiting by using their HSA funds in this way.

Because HSA dollars are pre-tax, eligible products and services you pay for using these funds are covered at a discount (ranging from 10% to 37%). In light of these discounts, spending and not saving is still better than not having an HSA altogether and paying for necessary medical expenses out of pocket. Without an HSA, you can end up draining your personal savings or racking up credit debt.

For many HSA savers, the optimal middle ground is to spend some HSA dollars and save some. This might involve spending a quarter to three-quarters of their HSA funds annually on eligible medical expenses while saving the rest. This tactic means you can both prepare for unexpected emergency medical expenses, like needing an ambulance or visiting the emergency room, while at the same time enjoying the long-term benefits that come from regular HSA contributions.