Retirement / HSA

Health savings account

The HSA is the only account in the US tax code that takes money in untaxed, lets it grow untaxed and pays it out untaxed. This projects the balance to retirement against the contribution limit, prices the income tax and payroll tax you avoid, and shows what the account is worth after the medical share is spent.

2025 limit$8,550Contribution room$7,550Effective value95%

Balance at 60

$368,822

$213,822 of it is investment growth

Contributed

$150,000

$5,000 you + $1,000 employer, per year

Tax saved

$39,563

24% income tax plus 7.65% FICA on the contribution

After-tax value

$351,118

80% spent on qualified care, the rest taxed at 24%

Projection to retirement

Contributions go in before payroll tax, growth is untaxed, and qualified withdrawals come out untaxed.

25 years

Projection to retirement
Age	Balance	Contributed	Growth	Tax saved
36	$11,476	$6,000	$476.17	$1,583
37	$18,352	$12,000	$1,352	$1,583
38	$25,651	$18,000	$2,651	$1,583
39	$33,401	$24,000	$4,401	$1,583
40	$41,629	$30,000	$6,629	$1,583
41	$50,365	$36,000	$9,365	$1,583
42	$59,639	$42,000	$12,639	$1,583
43	$69,485	$48,000	$16,485	$1,583
44	$79,938	$54,000	$20,938	$1,583
45	$91,037	$60,000	$26,037	$1,583
46	$102,819	$66,000	$31,819	$1,583
47	$115,329	$72,000	$38,329	$1,583
48	$128,610	$78,000	$45,610	$1,583
49	$142,710	$84,000	$53,710	$1,583
50	$157,680	$90,000	$62,680	$1,583
51	$173,573	$96,000	$72,573	$1,583
52	$190,446	$102,000	$83,446	$1,583
53	$208,360	$108,000	$95,360	$1,583
54	$227,379	$114,000	$108,379	$1,583
55	$247,571	$120,000	$122,571	$1,583
56	$269,009	$126,000	$138,009	$1,583
57	$291,769	$132,000	$154,769	$1,583
58	$315,932	$138,000	$172,932	$1,583
59	$341,586	$144,000	$192,586	$1,583
60	$368,822	$150,000	$213,822	$1,583

The $8,550 limit includes the employer contribution — a common and expensive mistake is to contribute the full limit personally when the employer is also adding to it.

Balance against contributions

The gap between the two lines is compound growth that was never taxed on the way up.

Where the money comes from

Your contributions, the employer share and growth over the whole period.

Canonical equations

The exact relationships implemented by this engine.

limit = base + catch-up · $4,300 self-only or $8,550 family, plus $1,000 from 55.

employee ≤ limit − employer · The employer share counts against the same limit.

saved = contribution × (t + FICA) · Only when the contribution runs through a payroll cafeteria plan.

B_{m+1} = B_m(1 + r/12) + c/12 · Monthly contributions, monthly compounding.

Show model notation and computationOpen the symbolic form, the variable definitions, and the step-by-step derivation when you need the detail.

A clear path from inputs to results.

A health savings account is the only account in the US tax code that takes money in untaxed, lets it grow untaxed and pays it out untaxed, provided the money is spent on medical care. This projects the balance against the contribution limit, prices the income tax and payroll tax avoided, and shows what the account is worth after the medical share is spent.

Step-by-step methodWorked exampleAssumptions explained

How to use

Choose self-only or family coverage — that sets the annual limit.

Enter your age; at 55 a catch-up contribution becomes available.

Add the balance you hold today and the amount you and your employer contribute.

Set the return you expect and the years to retirement.

Read the balance, the tax saved and the after-tax value of the account.

The formula

B_{m+1} = B_m\left(1+\frac{r}{12}\right) + \frac{c}{12} \;;\; \mathrm{saved} = c\,(t + \mathrm{FICA})

Reference: IRC §223 and IRS Rev. Proc. 2024-25 for the 2025 limits; the payroll exclusion follows IRC §125 cafeteria-plan treatment.

Worked example

Family coverage from 35, $5,000 a year plus $1,000 from the employer

Inputs

Age 35, family coverage, $5,000 balance today.
You contribute $5,000 a year; the employer adds $1,000.
6% return, 25 years, 24% marginal tax and 7.65% payroll tax.
80% of the balance eventually spent on qualified medical costs.

Calculation path

1
The 2025 family limit is $8,550, and the employer's $1,000 counts against it, leaving $7,550 of room for you.
2
Your $5,000 fits, so the full amount goes in and avoids 31.65% of tax between income tax and FICA — $1,583 a year.
3
Compounding $5,000 plus $6,000 a year at 6% for 25 years reaches $368,822.
4
Of that, $150,000 was contributed and $213,822 is growth that was never taxed.
5
Spending 80% on qualified care leaves $295,058 tax-free; the other 20% is taxed at 24% on the way out, leaving $56,061.
6
The after-tax value is therefore $351,118.

Result

$368,822 balance · $39,563 of tax avoided · $351,118 after tax.

Interpreting the result

The comparison that matters is not the balance but the tax treatment. A dollar in a taxable account buys less than a dollar here, because this one goes in before income tax and payroll tax, grows without an annual drag, and comes out without tax if it is spent on care. After 65 the account can pay for anything, taxed like a traditional IRA — so it behaves like an IRA plus a tax-free medical allowance.

Assumptions & limitations

Limits are the 2025 IRS figures: $4,300 self-only, $8,550 family, plus a $1,000 catch-up from age 55.

The employer contribution counts against the same limit as yours.

The payroll-tax saving assumes the contribution runs through a cafeteria plan; a direct contribution does not avoid FICA.

Contributions are spread monthly and compound monthly at a constant nominal return.

The qualified share is spent tax-free; the remainder is withdrawn after 65 and taxed at the marginal rate.

State tax treatment varies and is not modelled.

Frequently asked questions

Who can open an HSA?

Anyone enrolled in a qualifying high-deductible health plan, not covered by Medicare or another disqualifying plan, and not claimed as a dependent. The account stays yours if you change jobs or insurers; it is not tied to the employer.

Can I pay for last year's medical bills?

Yes, if the expense was incurred after the HSA was opened. There is no deadline on reimbursement, so paying out of pocket now and reimbursing yourself decades later is a legitimate way to let the balance compound.

Can I invest the balance?

Most custodians let you move balances above a cash threshold into funds. That is where the account earns its reputation: the same contribution, invested rather than held in cash, is worth several times more after thirty years.

What happens to the money if I do not spend it?

It rolls over every year with no deadline. Unlike a flexible spending account, there is no use-it-or-lose-it rule, which is why the HSA is best treated as a long-term investment account rather than a medical wallet.

What happens after 65?

The 20% additional tax for non-medical withdrawals disappears. You can take money for any purpose and pay ordinary income tax, exactly as with a traditional IRA — but qualified medical costs remain tax-free at any age.