Open Enrollment 2027: An HSA Could Be Your Most Overlooked Strategy

When planning for retirement, most people focus on maximizing their 401(k), contributing to an IRA, or building a diversified investment portfolio. But one of the most tax-efficient savings opportunities available may be hiding in your employer's healthcare benefits.

With open enrollment season underway and healthcare costs continuing to challenge household budgets, now is an excellent time to reconsider how your health insurance selections fit into your broader financial strategy.

For high-income professionals in particular, a Health Savings Account (HSA) can offer valuable tax advantages that extend well beyond paying for annual medical expenses.

What Makes an HSA So Valuable?

A Health Savings Account is a tax-advantaged account designed to help individuals save for qualified medical expenses. Unlike a Flexible Spending Account (FSA), HSA balances generally roll over from year to year, and the money remains yours even if you change employers or retire.

But what makes an HSA particularly attractive is its triple tax advantage:

1. Tax-advantaged contributions: Contributions are generally deductible from federal taxable income, while contributions made through an eligible employer payroll arrangement may also avoid Social Security and Medicare taxes.

2. Tax-free investment growth: Interest, dividends, and investment earnings can accumulate without federal income taxes.

3. Tax-free qualified withdrawals: Distributions used for eligible medical expenses are exempt from federal income taxes.

In other words, an HSA combines some of the most attractive features of traditional and Roth retirement accounts, with the potential for even greater tax efficiency when used for qualified healthcare expenses.

State tax treatment may differ, but the federal benefits alone make this account worth understanding.

The Catch: Not Every Health Insurance Plan Qualifies

To contribute to an HSA, you generally must be enrolled in an HSA-qualified high-deductible health plan (HDHP), have no disqualifying additional health coverage, not be enrolled in Medicare, and meet the other eligibility requirements.

For 2027, the IRS has established the following contribution limits:

Self-only coverage $4,500
Family coverage $9,000
Additional catch-up contribution, age 55+ $1,000

These limits include both employee and employer contributions.

Additionally, HSA-qualified high-deductible health plans must meet certain requirements for 2027:

Minimum annual deductible ~ Self-only $1,750; Family $3,500

Maximum annual out-of-pocket expenses ~ Self-only $8,700; Family $17,400

A high-deductible health plan may offer lower monthly premiums in exchange for greater out-of-pocket exposure before certain benefits begin. However, not every plan with a high deductible qualifies for HSA contributions.

This is why open enrollment should involve more than simply selecting the plan with the lowest premium. Consider your expected healthcare expenses, prescription needs, available cash reserves, provider networks, and the plan's maximum out-of-pocket costs.

The goal isn't necessarily to minimize your healthcare premiums. It's to make a decision that supports both your healthcare needs and your long-term financial position.

The Retirement Strategy Many High Earners Overlook

Here's where HSAs become especially interesting for individuals who already have strong retirement savings habits.

Although HSAs were designed to help cover healthcare expenses, eligible account holders aren't required to spend their balances each year.

Instead, depending on the account provider, they may be able to invest those funds and allow the balance to grow over time.

For individuals who can comfortably pay current medical expenses from other resources, this creates an opportunity to preserve HSA assets for future healthcare needs.

Consider a hypothetical example:

An individual contributes $4,500 annually to an HSA for 20 years, investing the funds and earning an assumed 6% annual return.

At the end of that period, the account could grow to approximately $166,000, assuming end-of-year contributions, no withdrawals, and no investment fees.

That's $90,000 in contributions and approximately $76,000 in investment growth.

If those funds are eventually withdrawn for qualified medical expenses, the entire amount could be distributed free of federal income taxes.

Of course, investment returns aren't guaranteed, and actual results will vary. Future HSA contribution limits may also change. But the example illustrates why an HSA can be much more than a place to hold money for annual doctor visits.

What Happens to Your HSA When You Retire?

One of the most appealing features of an HSA is that the account doesn't disappear when you leave your employer.

The balance remains yours, and existing funds can continue to be used for qualified medical expenses, even after you're no longer eligible to make new contributions.

After age 65, HSA funds can also be withdrawn for nonmedical purposes without the additional 20% federal tax that generally applies to nonqualified distributions before age 65. However, those nonmedical withdrawals remain subject to ordinary income tax.

This makes an HSA somewhat similar to a traditional IRA in retirement, with an important distinction: qualified medical withdrawals remain federally tax-free.

And given that healthcare can represent a substantial expense throughout retirement, building a dedicated pool of tax-advantaged assets may provide meaningful flexibility.

Certain Medicare premiums and other eligible healthcare expenses can also be paid using HSA funds, although Medicare supplemental insurance premiums generally don't qualify.

Should You Prioritize an HSA Over Your 401(k)?

For high-income households, the question isn't necessarily whether to contribute to an HSA instead of a retirement plan.

It's how to coordinate all available savings opportunities.

Employer matching contributions, current and anticipated future tax brackets, investment options, liquidity needs, and retirement timelines should all factor into the decision.

For example, someone already maximizing their employer's 401(k) may find an HSA to be an attractive additional opportunity for tax-efficient savings.

Others may benefit from prioritizing an employer match before directing additional savings toward an HSA.

And for households with significant ongoing medical expenses, a different health insurance plan may be more appropriate regardless of the HSA's potential tax advantages.

There is no universal contribution order that works for everyone.

Before You Finalize Your 2027 Open Enrollment Elections

Rather than automatically renewing last year's benefits, consider how your selections align with your financial goals.

Ask yourself:

• Have my healthcare needs or expected expenses changed?

• Does my employer offer an HSA-qualified health plan?

• Am I taking full advantage of any employer HSA contributions?

• Could I afford to pay some current medical expenses out of pocket while investing HSA assets for future needs?

• How do my HSA contributions fit alongside my 401(k), Roth savings, and other investments?

• Am I overlooking other employer benefits that could improve my financial position?

These decisions may seem small compared with selecting investments or planning for retirement. But over time, thoughtful benefits elections can have a meaningful impact on how efficiently you accumulate and preserve wealth.

Your Benefits Are Part of Your Wealth Strategy

Open enrollment is often treated as an administrative task: review the options, make a selection, and move on.

But for individuals focused on building long-term financial security, it's also an opportunity to revisit how their money is working for them.

A Health Savings Account won't be the right choice for everyone. Yet for those who qualify, it can be one of the most effective tools available for combining healthcare planning with tax-efficient wealth accumulation.

At Elswick Investments, we believe financial planning should account for the full picture, including the decisions that happen outside your investment portfolio.

Because building wealth isn't just about what you earn or how your investments perform. It's also about making thoughtful decisions regarding what you keep, how you save, and what those resources can accomplish over time.

Wealth strategies for your definition of success.

This article is for educational purposes only and should not be considered individualized investment, tax, or insurance advice. HSA eligibility and tax treatment depend on individual circumstances. Consult your tax professional and benefits administrator before making elections. Investment returns are not guaranteed.