HSAs: The Most Underrated Retirement Account for Attorneys

If someone told you there was an account with better tax benefits than a 401(k) and a Roth IRA combined, you'd probably assume there was a catch.

There is a catch. But it's smaller than you think.

The Health Savings Account is the most tax-advantaged account in the entire tax code. It's also the most misunderstood. Most people treat it like a medical spending account. That's a mistake. Used correctly, an HSA is a stealth retirement account that can shelter tens of thousands of dollars from taxes over your career.

Here's why attorneys, specifically, should be paying attention.

The triple tax advantage (yes, triple)

Most tax-advantaged accounts give you one tax break. Maybe two. The HSA gives you three.

Tax break #1: Contributions are tax-deductible.

When you contribute to an HSA, the money comes out of your taxable income. If you're in the 35% federal bracket plus 10% state and city (hello, New York), every dollar you contribute saves you roughly 45 cents in taxes. The $4,300 individual contribution limit for 2025 saves you about $1,900 in taxes. The $8,550 family limit saves you about $3,800.

Tax break #2: Growth is tax-free.

Once money is in your HSA, it grows without any annual tax drag. No taxes on dividends. No taxes on capital gains. Just like a Roth IRA.

Tax break #3: Withdrawals for qualified medical expenses are tax-free.

When you take money out for eligible healthcare costs, you pay zero taxes. Not reduced taxes. Zero.

No other account offers all three. Traditional 401(k)s give you tax-deductible contributions but taxable withdrawals. Roth IRAs give you tax-free withdrawals but no deduction going in. The HSA gives you both, plus tax-free growth in the middle.

If tax benefits were Pokémon, the HSA caught them all.

The catch (it's manageable)

To contribute to an HSA, you must be enrolled in a High Deductible Health Plan. For 2025, that means a plan with a deductible of at least $1,650 for individual coverage or $3,300 for family coverage.

Many people avoid HDHPs because the word "high deductible" sounds scary. You picture yourself paying thousands out of pocket before insurance kicks in.

But here's the thing: if you're young and relatively healthy, you probably aren't spending much on healthcare anyway. And even if you do hit the deductible, the tax savings from HSA contributions often offset the higher out-of-pocket costs.

Run the numbers for your specific situation. For many BigLaw associates, the HDHP plus HSA combination comes out ahead even in years when you actually use healthcare.

The retirement account hiding in plain sight

Here's where most people get it wrong.

They treat the HSA like a flexible spending account. Money goes in, money comes out for prescriptions and doctor visits, balance stays low.

That's leaving money on the table.

The smarter play: contribute the maximum, invest the balance, and don't touch it for decades.

There's no "use it or lose it" rule with HSAs. The money rolls over indefinitely. And there's no requirement to reimburse yourself in the same year you incur the expense.

Read that again. You can pay for medical expenses out of pocket today, save your receipts, and reimburse yourself from your HSA years or even decades later. The money keeps growing tax-free the entire time.

By the time you retire, you could have a six-figure account that you can drain tax-free, as long as you kept your receipts.

Why this matters more for high earners

The HSA's value scales with your tax bracket.

If you're in the 12% bracket, the contribution deduction saves you 12 cents per dollar. Nice, but not life-changing.

If you're a BigLaw associate in the 35% federal bracket, plus 10% combined state and city tax in New York, the deduction saves you 45 cents per dollar. The $8,550 family contribution limit represents $3,850 in immediate tax savings.

And that's just the contribution side. The tax-free growth and tax-free withdrawals become more valuable too, because the alternative (a taxable account) would be taxed at your high marginal rate.

For high earners, the HSA isn't a nice-to-have. It's one of the most efficient places to put money.

The 2025 contribution limits

For 2025:

• Individual coverage: $4,300
• Family coverage: $8,550
• Catch-up contribution (age 55+): additional $1,000

These limits are lower than 401(k) limits, but the triple tax benefit makes each dollar count more. And unlike IRAs, there are no income limits restricting who can contribute.

What to invest in

Most HSA providers offer investment options once your balance exceeds a certain threshold (often $1,000 or $2,000).

The same principles apply as with your 401(k): low-cost index funds beat high-fee actively managed funds over time. Look for a total stock market index fund or an S&P 500 index fund with an expense ratio under 0.10%.

Some HSA providers have terrible investment options with high fees. If yours does, consider transferring to a better provider. Fidelity, for example, offers an HSA with no fees and access to their full range of low-cost index funds.

You can transfer HSA funds between providers without tax consequences, similar to an IRA transfer. It's worth doing if your current provider is expensive.

The receipt system

If you're going to let your HSA grow and reimburse yourself later, you need a system for tracking medical expenses.

This doesn't have to be complicated. Create a folder (physical or digital) called "HSA Receipts." Every time you pay for a qualified medical expense out of pocket, save the receipt with the date and amount. That's it.

Qualified expenses include doctor visits, prescriptions, dental work, vision care, mental health services, and a surprisingly long list of other items. The IRS publishes the full list in Publication 502.

When you're ready to reimburse yourself (maybe in retirement, maybe sooner if you need the money), you have documentation for every dollar you withdraw.

Some people use apps to photograph and organize receipts. Some use spreadsheets. Some use a shoebox. The method matters less than the habit.

What happens at age 65

Once you turn 65, the HSA becomes even more flexible.

You can still withdraw money tax-free for qualified medical expenses, same as always. But now you can also withdraw money for any purpose without penalty. You'll owe income tax on non-medical withdrawals (just like a traditional IRA), but no penalty.

This means your HSA effectively becomes a traditional IRA at 65, with the added bonus that medical withdrawals remain completely tax-free.

Given that healthcare is often the largest expense in retirement, having a dedicated tax-free account for those costs is genuinely valuable. Fidelity estimates that the average 65-year-old couple will spend roughly $315,000 on healthcare in retirement. A well-funded HSA can cover a significant chunk of that, tax-free.

Common mistakes to avoid

Using the HSA as a spending account. The triple tax advantage is wasted if you drain the account every year. Let it grow.

Leaving the balance in cash. Many HSAs default to a cash or money market position. If you're not investing the balance, you're missing out on decades of tax-free growth.

Losing receipts. If you can't document the expense, you can't reimburse yourself tax-free. Save everything.

Forgetting to switch providers. If your employer's default HSA has bad investment options and high fees, you can transfer to a better one. Don't accept a subpar provider out of inertia.

Skipping the HSA because you're healthy. That's exactly when you should prioritize HSA contributions. You're not spending on healthcare now, so the money can grow untouched for decades.

How the HSA fits into your overall strategy

The HSA isn't a replacement for your 401(k) or IRA. It's an addition.

A solid approach for BigLaw associates:

1. Contribute enough to your 401(k) to get the full employer match
2. Max out your HSA ($4,300 or $8,550 depending on coverage)
3. Max out the rest of your 401(k) ($23,500 total)
4. Do a backdoor Roth IRA ($7,000)
5. If your plan allows, do a mega backdoor Roth
6. Anything left goes to taxable brokerage

The HSA slots in early because the triple tax advantage is hard to beat. Even if you can't do everything on this list, the HSA should be near the top of your priority order.

The bottom line

The HSA is the most tax-efficient account available, and most people ignore it or use it wrong.

If you're enrolled in a high-deductible health plan, you have access to a triple-tax-advantaged retirement account that can grow for decades and fund your healthcare costs tax-free. If you're not enrolled in an HDHP, it's worth running the numbers to see if switching makes sense.

Either way, stop thinking of the HSA as a place to park money for this year's prescriptions. Start thinking of it as a retirement account that happens to also cover medical expenses.

Your future self, paying for healthcare in retirement with tax-free dollars, will appreciate it.