Daperis CPAHSAs: The Most Underused Tax Account in the Code
Ask most people what their best tax-advantaged account is, and they'll say their 401(k) or their Roth IRA. Almost nobody says their HSA, usually because they only think of it as a way to pay a copay, not as one of the only accounts in the entire tax code that gives you a deduction going in, tax-free growth while it sits, and a tax-free withdrawal coming out, as long as the money goes toward healthcare.
That's three tax breaks stacked on top of each other. A 401(k) gives you the first two. A Roth IRA gives you the last two. An HSA, used right, gives you all three. And healthcare is one of the few expenses guaranteed to hit everyone eventually.
Who Can Actually Have One
You need to be enrolled in a high-deductible health plan, and not have other coverage that disqualifies you, most commonly Medicare or a spouse's general-purpose flexible spending account. Not every plan with a high deductible actually qualifies. The IRS sets specific minimum-deductible and maximum-out-of-pocket numbers each year, and for 2026 those are a minimum deductible of $1,700 for individual coverage or $3,400 for family, and a maximum out-of-pocket of $8,500 individual or $17,000 family. If your plan doesn't hit those numbers, it doesn't matter how it's marketed, it's not eligible.
For 2026, eligibility also expanded to include certain marketplace plans and direct primary care arrangements that didn't qualify before, which opened this up to more self-employed people and small business owners buying their own coverage.
How Much You Can Put In
For 2026, you can contribute $4,400 with individual coverage or $8,750 with family coverage, plus an extra $1,000 if you're 55 or older. That catch-up amount is fixed and hasn't changed in over a decade, unlike the base numbers, which usually go up a bit each year. These limits cover everything going in combined, your own contributions, payroll contributions, and anything your employer adds. If your employer puts money in, that reduces how much room you have left to contribute yourself.
The account is yours, not your employer's, and it moves with you if you change jobs, unlike a flexible spending account, which usually doesn't.
The Triple Tax Break, Explained Simply
Contributions lower your taxable income for the year. Money inside the account grows without being taxed. And withdrawals for qualified medical expenses are never taxed at all.
There's no "use it or lose it" deadline like a flexible spending account has. Unused money rolls over every year, indefinitely, and a lot of HSA providers let you invest part of the balance once it hits a certain amount, the same way you'd invest inside a 401(k) or IRA.
The Move Most People Miss: Using It Like a Second Retirement Account
Since there's no deadline to reimburse yourself for a medical expense, some people pay smaller medical bills out of pocket now, save the receipts, and let their HSA balance grow untouched for years or decades. You can pay yourself back for that old expense any time in the future, tax-free, no matter how much the account has grown since. Used this way, an HSA works better than either kind of IRA, as long as you can afford to cover medical costs now without dipping into the account.
Once you turn 65, the account gets even more flexible. You can take money out for anything, not just medical expenses, without the usual 20% penalty. You'll still owe regular income tax on non-medical withdrawals, similar to a traditional IRA, but the penalty goes away.
California and New Jersey: Pay Attention Here
Almost every state with an income tax follows the federal rules for HSAs automatically. California and New Jersey don't. Both states tax your HSA contributions as regular income, so you get the federal deduction but not a matching state one, and both keep taxing the investment growth inside the account every year instead of letting it grow tax-deferred like it does federally. That strips out two of the three tax benefits at the state level, while the federal benefit stays intact.
If you're in California or New Jersey, an HSA is still worth having, the federal deduction and tax-free withdrawals are real, but it needs separate tracking on your state return, and it changes the math on how much the "invest and let it grow" strategy above actually helps you compared to someone in a state that follows the federal rules. This is specific enough, and different enough from the standard HSA advice you'll find online, that it's worth a direct conversation about your own numbers.
Self-Employed Owners: Don't Mix This Up
If you're self-employed, your HSA contribution is a separate deduction from your self-employed health insurance premium deduction, which covers your actual monthly premiums. Both are real, both are valuable, but they cover different things, and mixing them up on your return is a common mistake.
Keep It Simple / Key Takeaway 🍕
An HSA is one of the few places in the tax code where you get a deduction, the money grows untaxed, and you don't get taxed again on the way out, as long as it eventually goes to healthcare. If you're on an HDHP and not maxing this out, or not using it at all because it feels like "just a medical account," it's worth a second look, especially if you could cover smaller medical bills out of pocket now and let this account grow quietly in the background for years.
If you're self-employed, this is one of several deductions worth tracking systematically, see our small business deductions checklist for the rest.
Disclaimer: This article is for educational and informational purposes only and is not intended as financial, investment, legal, or tax advice. The author assumes no liability whatsoever in connection with its use. This content is not an exhaustive explanation of any topic, practice or process. You should always seek the advice of a licensed professional before making any accounting, tax, financial, investment or legal decision.