a man sitting with friends outdoors looks back at camera

Finding more freedom with an HSA

Jan 21, 2021
Empower Insights

A recent grad ditches a flexible spending account in favor of a flexible, tax-advantaged HSA

When Riley Adams started his first job after grad school in 2014, he had the option of opening either a flexible spending account (FSA) or a health savings account (HSA). He was freshly off his parents’ health plan, and with little knowledge of or experience with health plans, he decided to go with an FSA. “You lose whatever you don't use by the end of the year, so I just put $100 in the account,” he says. By the end of the year, however, he hadn’t touched his FSA savings.

To use up the money, Adams bought a new pair of glasses even though he didn’t really need them — his current pair wasn’t old, and his prescription wasn’t outdated. While buying an unnecessary pair of glasses was a minor annoyance overall, he says, it underscored the key tension he felt with the FSA. “I’m essentially being penalized for trying to plan ahead and setting aside money, and then having good health throughout the year,” he says.

So when it came time for open enrollment, Adams ditched his FSA and opened an HSA. The switch made no difference to his health plan — he was still enrolled in a high-deductible plan that meant he paid very low premiums. And Adams understood the tremendous value of the HSA’s triple tax advantage.1 “Ever since then, I've been putting as much money as I can into that account, and just letting it sit there,” he says. “Most of it is invested so that 20 years from now, hopefully it’ll have grown considerably.”

Planning for healthcare costs can be a challenge because it’s impossible to know whether or when you might get sick or injured. But Adams feels confident that, over time, the price tag of medical expenses will only increase. So, in his view, putting money away and allowing it to grow in a tax-advantaged account makes sense. He increased his contributions little by little each year until he finally reached the maximum contribution limit.

In 2019, Adams relocated to the Bay Area to work as a senior financial analyst for Google. He and his wife chose to continue using a high-deductible plan with an HSA, and they’ve been happy with it, even as they welcomed their first child — adding a new member to the plan. 

Adams’ strategy is to contribute the maximum to his HSA every year. He keeps the amount his family expects to spend on out-of-pocket costs in as cash as a precaution, then invests the rest. Adams thinks of the HSA as a long-term savings account that his family won’t draw from unless absolutely necessary. “If our budget allows and we’re in good health, I’d like to pay for any healthcare expenses out of our normal cash flow,” he says. “That way, we can leave the HSA untouched, so the money can continue growing in the investment account with those tax advantages.” In 2021, many Americans are looking to worry less about their finances, and an HSA might just be one way to do it.2

Learn which out-of-pocket expenses your HSA can cover

Testimonials may not be representative of the experience of other individuals and are not a guarantee of future performance or success.

1 Contributions, any earnings and withdrawals are federal income tax-free if used to pay for qualified medical expenses. State income taxes may still apply. HSA funds used for nonqualified medical expenses may be subject to applicable federal and state income taxes and/or penalties. 

2 Empower Retirement and Personal Capital, “Post-2020 Financial Mindsets” research in conjunction with Harris Poll, November 25, 2020, to December 11, 2020, among 2,008 respondents.

Latest Empower Insights

Two women speaking at office desk, one holding coffee.
Feb 23, 2021
Empower Insights

Finding Trustworthy Financial Advice

If you’re considering seeking out financial advice to get things back on track, here are a few places to start looking.

Carefully consider the investment option’s objectives, risks, fees and expenses. Contact Empower Retirement for a prospectus, summary prospectus for SEC-registered products or disclosure document for unregistered products, if available, containing this information. Read each carefully before investing.

Securities offered and/or distributed by GWFS Equities, Inc., Member FINRA/SIPC. GWFS is an affiliate of Empower Retirement, LLC; Great-West Funds, Inc.; and registered investment advisers, Advised Assets Group, LLC and Personal Capital. This material is for informational purposes only and is not intended to provide investment, legal or tax recommendations or advice. 

IMPORTANT: The projections, or other information generated on the website by the investment analysis tool regarding the likelihood of various investment outcomes, are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. The results may vary with each use and over time.

Insurance products are issued by or offered through Great-West Life & Annuity Insurance Company, Corporate Headquarters: Greenwood Village, CO; or in New York, by Great-West Life & Annuity Insurance Company of New York, Home Office: New York, NY. Guarantees are subject to the terms and conditions of the contract and the claims-paying ability of the insurer.

The Empower Institute is a research group within Empower Retirement, LLC.

All features may not currently be available and are subject to change without notice. ©2021 Empower Retirement, LLC. All rights reserved.

Unless otherwise noted: Not a Deposit | Not FDIC Insured | Not Bank Guaranteed | Funds May Lose Value | Not Insured by Any Federal Government Agency.