Economists frequently promote the three-pronged tax advantages of health cost savings accounts.
In order to take full advantage of those tax advantages, monetary consultants frequently make a suggestion along these lines: Pay out-of-pocket for today’s medical expenses– instead of tapping the HSA right away– if you can manage it.
On the other hand, invest your HSA funds in the stock exchange to develop a powerful tax-advantaged war chest. Then utilize those profits years in the future to cover previous out-of-pocket health expenses– entirely tax-free. They can even be utilized to pay yourself back for medical expenditures sustained years prior.
However this guidance is rather insufficient: To compensate yourself later on, you likewise require to conserve your invoices and other documents for that old medical expenditure– or run the risk of sustaining taxes and charges from the Irs throughout an audit, according to monetary consultants.
It’s maybe the “greatest thing” individuals neglect when it concerns HSAs, stated Ryan Greiser, a qualified monetary organizer and co-founder of Opulus, a monetary advisory company based in Doylestown, Pennsylvania.
” Individuals are merely not arranged and will not keep comprehensive records so [that] if the internal revenue service comes knocking, it’ll be audit evidence for them, for years,” Greiser stated.
What are HSAs?
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Health cost savings accounts are tax-advantaged in 3 methods: Contributions, account development and circulations are all tax-free.
For circulations to be tax-free, they should be utilized for a competent medical expenditure such as physician sees, prescriptions or medical devices, to name a few things.
HSAs are offered just to customers with a high-deductible health insurance, which companies have actually gradually embraced given that the early 2000s.
About 31% of business that use health advantages to employees provided an HSA-qualified high-deductible health insurance in 2025, according to KFF, a health policy research study group. That’s up from 4% of companies in 2005.
On The Other Hand, about 29% of employees covered by an employer-sponsored health insurance were registered in an HSA-qualified high deductible strategy in 2025– a record high, according to KFF.
Customers likewise turned to HSA-qualified strategies quicker on the Affordable Care Act market amidst greatly greater premiums for 2026, according to health policy professionals.
HSA possessions swelled to $174 billion by the end of 2025, up from about $30 billion in 2015, according to Devenir, a business that offers financial investments for health cost savings accounts. More than 4 million accounts held a minimum of $10,000 since year-end 2025, it stated.
About half of overall HSA possessions– $85 billion– are invested while the rest is kept in cash-like bank account, according to Devenir.
” Investing HSA balances offers a distinct, untaxed wealth-building automobile for those who know this alternative and have the methods to do so,” KFF experts composed in 2015 in a policy quick.
Why to keep HSA invoices
Monetary consultants usually suggest that homes with HSAs conserve a minimum of enough in the account to cover their yearly deductible.
This is the quantity homes usually should pay of pocket before their insurance coverage begins and begins to cover medical expenses.
For homes with the methods to do so, it might be much better to pay of pocket for health care today instead of tap HSA funds, monetary consultants stated. This permits them to invest their contributions and conserve profits for future health expenditures.
Account holders can likewise utilize the HSA as a quasi-piggy bank from which they can withdraw funds for unreimbursed medical expenses sustained years back– as long as the expenditure was sustained after the HSA was developed. They likewise can’t have actually declared that medical expenditure as a tax reduction in previous years.
” Conserve all your invoices,” stated Carolyn McClanahan, a qualified monetary organizer and creator of Life Preparation Partners in Jacksonville, Florida.
Account holders can usually withdraw cash from HSAs at any time, without requiring to offer evidence of a certifying medical expenditure to the HSA account administrator, stated McClanahan, a member of CNBC’s Financial Consultant Council.
Nevertheless, the account holder does require to offer evidence if the internal revenue service carries out a tax audit in the future, McClanahan stated. Without such evidence, the internal revenue service might deal with the circulation as taxable and enforce charges and interest for underpayment, she stated.
Any part of an HSA circulation not utilized to pay competent medical expenditures is consisted of in gross earnings and goes through an extra 20% tax, with some exceptions, according to the internal revenue service.
The internal revenue service usually has a three-year statute of restrictions to examine a taxpayer after they submit their yearly income tax return.
Nevertheless, if the internal revenue service discovers “a considerable mistake,” it can extend the statute, as much as 6 years overall, according to the company. And, the internal revenue service can recall forever if it presumes scams, professionals stated.
Some should ‘simply utilize it as you go’
Significantly for HSA account holders, taking a circulation from your HSA is what begins the time clock for the statute of restrictions, Greiser stated.
So, if you sustained a qualified medical expenditure at age 30 and compensate yourself for the expenditure at age 60, the three-year statute of restrictions would begin at age 60– indicating you ‘d need to keep documents for more than thirty years, Greiser stated.
Individuals who do not anticipate to keep those records over the long term might be much better served utilizing their HSAs more like a pay-as-you-go savings account for short-term medical expenditures, instead of waiting years to compensate themselves, he stated.
” Forget the audit threat and company threat and simply utilize it as you go,” he stated.
What documents to conserve
Specialists usually suggest keeping evidence such as drug store invoices, expenses from the physician’s workplace, HSA declarations, and declares info of a description of take advantage of your insurance coverage company.
One significant issue with keeping paper files over the long term: They fade gradually, McClanahan stated.
She stated she scans customers’ medical invoices to produce a digital copy and likewise develops a spreadsheet to track a continuous list of expenditures for which customers can later on compensate themselves tax-free.