Don’t Settle for a Subpar Health Savings Account
Dec 9, 2025, 11:28 AM | Updated: Dec 10, 2025, 5:26 am
FILE - This Oct. 24, 2016 file photo shows dollar bills in New York. (AP Photo/Mark Lennihan, File)
Credit: ASSOCIATED PRESS
(AP Photo/Mark Lennihan, File)
Paired with high-deductible healthcare plans, health savings accounts help ease healthcare costs. HSAs are a triple tax-advantaged vehicle in the tax code, allowing for pretax contributions, tax-free compounding, and tax-free withdrawals for qualified medical expenses. However, few owners fund their HSAs to the maximum, and even fewer invest their HSA dollars outside a savings account.
Most consumers likely don’t fill their HSAs because they lack the financial means; critics note that the HDHP/HSA combination can be less beneficial for lower-income workers. But even wealthy consumers may decline to fully fund their HSAs. Many HSAs charge account-maintenance fees and extra costs for investing in long-term assets.
Unlike 401(k)s, where participants are typically captive in employer plans, HSA savers can move money from one HSA to another via transfer or rollover. Below, how to know if your HSA is subpar, and what to do if it is.
HSAs appear preferable to other tax-advantaged savings vehicles, especially for investors expecting out-of-pocket healthcare expenses. Even in a worst-case scenario—using HSA funds for non-healthcare expenses—the HSA is at least as good as a traditional tax-deferred 401(k) or IRA.
Yet HSA expenses and/or investment shortcomings can erode their tax benefits, particularly for smaller HSA investors. Flat dollar-based account-maintenance fees (say, $45/year) hit smaller HSA investors harder, and interest rates for smaller HSAs may be lower. It’s worthwhile to conduct due diligence on your HSA, assessing the following:
1. Setup Fees: A one-time fee imposed at account opening, sometimes covered by employers.
2. Account-Maintenance Fees: Monthly or annual fees for maintaining your account, also sometimes covered by employers.
3. Transaction Fees: Dollar-based fees that may be levied when paying for services using the HSA.
4. Interest Rate on Savings Accounts: For people using the HSA to fund out-of-pocket healthcare costs (or taking a hybrid approach), it’s particularly important to monitor your savings rate of return. Many HSAs offer higher interest rates on larger balances; that argues for building and maintaining critical mass in your HSA.
5. Investment-Related Expenses: Investors may face mutual fund or ETF expense ratios, sales charges, and dollar-based fees for maintaining investment accounts.
6. Investment Choices: Assess the investment lineup on offer to make sure it aligns with your investment philosophy.
If your employer-provided HSA is lacking, you have three choices.
Option 1: Contribute to an HSA on Your Own
If you’re enrolled in a HDHP, you can choose a different HSA provider and deduct your HSA contributions on your tax return. That’s more cumbersome and requires more discipline than payroll deductions, so forgoing payroll deductions is usually not the best option.
Option 2: Transfer the Money from Your Employer-Provided HSA Into Another HSA
Your HSA contribution comes directly from your paycheck and goes to your employer-provided HSA; you can then periodically transfer some or all of that balance into your preferred HSA provider. There are no tax consequences on HSA transfers, and you can conduct multiple transfers per year. You can have more than one HSA, so this approach can work well for employees whose “captive” HSAs feature decent savings but less-compelling investment options.
Option 3: Roll Over the Money From Your Employer-Provided HSA Into Another HSA
This is similar to option 2. You contribute to your employer-provided HSA via payroll deduction, then roll over the money to your preferred HSA provider.
There are two key differences between a rollover and a transfer. In a transfer, two trustees handle the funds. In a rollover, you get a check that you must deposit into another HSA within 60 days, or it counts as an early withdrawal, and a 20% penalty will apply if you’re not yet 65. Multiple transfers are permitted between HSAs, but only one HSA rollover is allowed every 12 months.
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This article was provided to The Associated Press by Morningstar. For more personal finance content, go to https://www.morningstar.com/personal-finance.
Christine Benz is director of personal finance and retirement planning for Morningstar.
