Health Savings Accounts (HSAs) are one of the best financial tools out there—offering tax advantages and long-term growth potential. Unfortunately, most people don’t use them to their full potential, and some make mistakes that cost them serious money. Heck, I could have easily made the mistake with my own family’s medical expenses.

Last year, my daughter had major jaw surgery (which, as a father, was both emotionally and financially painful). My first inclination was to use some of the funds we had saved up over the past 10+ years. It would have been easy to use our HSA to cover the cost immediately—but instead, I kept the receipts and paid out of pocket.

Why? Because someday, when I’ve likely predeceased my wife (thanks to my bad knees, statistical likelihood, and general refusal to ask for directions), she may be in a higher tax bracket. By holding onto those records, she can withdraw from the HSA tax-free in retirement, when it may matter more.

So, in the spirit of learning from my own near mistake, here are the biggest blunders we see clients make with HSAs—and how to avoid them.

1) Not Contributing Enough (Or at All)

Health Savings Accounts have a triple tax advantage:

• Tax-deductible contributions (which lower your taxable income)
• Tax-free growth (investments inside the HSA grow without Uncle Sam taking a cut)
• Tax-free withdrawals (when used for qualified medical expenses)

Despite these benefits, many people don’t contribute enough—or at all. Often, people treat HSAs like a Flexible Spending Account (FSA) and don’t realize they can be much more than a way to cover this year’s medical bills. Instead, they should be viewed as a stealth retirement account.

How to Fix It

• Set up automatic contributions so you don’t forget.
• Treat your HSA like a long-term investment rather than a piggy bank for doctor visits.

2) Letting the Money Sit in Cash

Most HSA providers let you invest your balance, but too many people leave their funds sitting in cash, earning far less over the long term. This happens more often than you might think simply because your workplace HSA plan may require you to accumulate and hold a minimum amount of cash first. I frequently see a requirement of $1,500 or more. If your goal is long-term growth, your money should be working for you.

How to Fix It

• If your provider allows it, invest a portion of your HSA balance similarly to the long-term investments held in your other retirement accounts.
• If needed, keep some cash available for short-term medical expenses, but invest the rest with a long-term horizon.

3) Bad (AKA No) Record-Keeping

HSAs are only tax-free if used for qualified medical expenses. But if you’re audited and can’t prove your withdrawals were qualified, prepare for penalties.

How to Fix It

• Digitally save all receipts for medical expenses you pay out of pocket.
• Use an app or simple spreadsheet to track your spending so your future self—or spouse—knows how much can be withdrawn tax-free.

4) Withdrawing Too Early

This is where my daughter’s jaw surgery comes in. Most people assume they should use their HSA funds now for medical expenses. But there’s no rule saying you have to withdraw the money immediately. If you can afford to pay out of pocket and keep your receipts, you can wait years—even decades—to pull the money out tax-free.

Why This Matters

• Your HSA funds keep growing tax-free.
• You can reimburse yourself in retirement, when you may need the money more.
• If your spouse ends up in a higher tax bracket after you’re gone, withdrawing in retirement could save money in taxes.

The Bottom Line

HSAs are an incredible wealth-building tool—but only if you use them wisely. Contribute as much as you can, invest the funds, pay out of pocket for as many health costs as possible, keep meticulous records, and don’t be too quick to pull money out. Your future self—and maybe your surviving spouse—will thank you.

If you’d like to learn more about Health Savings Accounts, please reach out. We’d be happy to provide more detailed information.

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Investing involves risk, and you may incur a profit or loss regardless of the strategy selected.