Financial experts often tout three tax benefits of medical savings accounts.
To take full advantage of these tax benefits, financial advisors often make recommendations along the lines of: If you can afford it, pay your medical expenses out-of-pocket today instead of tapping into your HSA right away.
Meanwhile, invest your HSA funds in the stock market to build a strong tax-advantaged war chest. Then, decades later, the proceeds will be used to pay for past medical expenses out-of-pocket. This is completely tax-free. You can also use it to pay yourself back for medical expenses incurred years ago.
However, this advice is somewhat incomplete. Financial advisors say you should also save receipts and other documents from those old medical bills in order to reimburse yourself later. Otherwise, they risk incurring taxes and penalties from the Internal Revenue Service during an audit.
This is probably the “biggest thing” people overlook about HSAs, says Ryan Glaser, a certified financial planner and co-founder of Doylestown, Pennsylvania-based financial advisory firm Opulus.
“People are just not organized and don’t keep detailed records, so if the IRS comes knocking, that’s going to be audit evidence for them for decades,” Gleiser said.
What is an HSA?
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Health savings accounts are tax-advantaged in three ways. Contributions, account growth, and distributions are all tax-free.
For distributions to be tax-free, they must be used for qualified medical expenses, such as doctor visits, prescriptions, and medical equipment.
HSAs are only available to consumers with high-deductible health insurance, which employers have been steadily implementing since the early 2000s.
About 31% of companies that offer health benefits to employees offered HSA-qualified high-deductible health plans in 2025, according to KFF, a health policy research group. This is up from 4% of employers in 2005.
Meanwhile, about 29% of workers covered by employer-sponsored health insurance will be in HSA-qualified high-deductible plans in 2025, the highest on record, according to KFF.
Health policy experts say consumers have also become more readily available for HSA-qualified plans in the Affordable Care Act marketplace as premiums rise significantly in 2026.
HSA assets will grow from about $30 billion in 2015 to $174 billion by the end of 2025, according to Devenia, a provider of investments in health savings accounts. More than 4 million accounts will hold at least $10,000 by the end of 2025.
About half of HSA’s total assets ($85 billion) are invested, with the rest held in cash-like savings accounts, Devenier said.
“Investing HSA balances provides a unique tax-free wealth-building vehicle for those who recognize this option and have the means,” KFF analysts said in a policy brief last year.
Why keep your HSA receipts?
Financial advisors generally recommend that households with HSAs save enough money in the account to cover at least the annual deductible.
This is the amount that households typically have to pay out-of-pocket before insurance kicks in and begins covering medical costs.
For families who can afford it, it may be better to pay for health care costs out-of-pocket today rather than tap into HSA funds, financial advisors said. This allows you to invest your endowment and save the proceeds for future medical expenses.
Account holders can also use an HSA as a pseudo-piggy bank, from which they can withdraw funds for unpaid medical expenses incurred years ago, but only for expenses incurred after the HSA was established. They also couldn’t claim those medical expenses as tax credits in previous years.
“Save all your receipts,” says Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners in Jacksonville, Florida.
McClanahan, a member of CNBC’s Council of Financial Advisors, said account holders typically don’t have to provide proof of qualified medical expenses to their HSA account administrator and can withdraw money from their HSA at any time.
However, if the IRS conducts a tax audit in the future, the account holder will need to provide evidence, McClanahan said. Without such evidence, the IRS could treat distributions as taxable and impose penalties and interest on underpayments, she said.
According to the IRS, the portion of HSA distributions not used to pay for qualified medical expenses is included in gross income and, with some exceptions, is subject to an additional 20% tax.
The IRS typically has a three-year statute of limitations to audit a taxpayer after they file their annual tax return.
But if the IRS finds “material error,” that statute of limitations could be extended by up to six years in total, according to the IRS. And experts say the IRS can go back indefinitely to suspect fraud.
Some people should “just use it”
Importantly for HSA account holders, taking distributions from an HSA starts a time clock on the statute of limitations, Greiser said.
So, if you incur a qualifying medical expense at age 30 and reimburse yourself for it at age 60, the three-year statute of limitations begins at age 60, meaning you’ll have to keep your documents for more than 30 years, Gleiser said.
For people who don’t plan to keep these records long-term, he said, it may be better to use an HSA like a pay-as-you-go bank account to pay for short-term medical expenses, rather than waiting years to reimburse yourself.
“Forget audit risk, forget organizational risk, and just use it,” he said.
What kind of documents to save
Experts generally recommend keeping evidence such as pharmacy receipts, doctor’s office bills, HSA statements, and billing information from your insurance company for explanations of benefits.
One of the big problems with storing paper documents for long periods of time is that they fade over time, McClanahan said.
She said she scans customers’ medical receipts to create digital copies and also creates spreadsheets to track a running list of expenses that customers can later reimburse tax-free.
