Why Some People Are Choosing HSAs Over 401(k)s

Retirement planning is one of the most important financial tasks you can undertake. Yet, as retirement savings vehicles evolve, choosing a 401(k) or Health Savings Account (HSA) has become more pertinent. While 401(k) plans have been the go-to retirement plan for decades, HSAs are growing in popularity, offering a unique combination of tax advantages, flexibility, and the ability to cover healthcare expenses—an area many Americans find challenging to save for.

So why are some people choosing HSAs over 401(k)s? The answer lies in the tax benefits, flexibility, and dual-purpose savings potential that HSAs offer, which 401(k)s don’t. Let’s dive into why some people are choosing HSAs over 401(k)s, and the benefits they offer.

What Is an HSA?

HSA Basics: Health Savings Accounts Explained

A Health Savings Account (HSA) is a tax-advantaged account for individuals with a high-deductible health plan (HDHP). These accounts allow people to set aside money pre-tax to cover qualified healthcare expenses, and the funds can be used for medical costs now or later in life. Since the funds in an HSA grow tax-free, and withdrawals are tax-free when used for healthcare, HSAs are considered one of the most tax-efficient accounts available.

Eligibility

To contribute to an HSA, you must be enrolled in a high-deductible health plan (HDHP), which means the insurance plan has a higher deductible than traditional health insurance. This allows individuals to save money on premiums in exchange for taking on more out-of-pocket responsibility for their medical care.

• Contribution Limits: As of 2025, individuals can contribute $3,650 to their HSA, while families can contribute $7,300. If you’re 55 years or older, you can also contribute an additional $1,000 as a catch-up contribution.
• Triple Tax Advantages: The primary appeal of HSAs is their triple tax advantage:
  1. Tax-free contributions: Money you put into an HSA is deducted from your taxable income, lowering your overall tax bill.
  2. Tax-free growth: The funds you contribute to the HSA grow tax-free, allowing your balance to accumulate without taxes.
  3. Tax-free withdrawals: When you use the funds for qualified medical expenses, they are withdrawn tax-free.

What Is a 401(k)?

Understanding the 401(k) Plan

A 401(k) plan is an employer-sponsored retirement plan that allows employees to contribute pre-tax income into an individual account. These funds grow on a tax-deferred basis, meaning you don’t pay taxes until you withdraw the funds in retirement. Employers may also match a percentage of the contributions made by the employee.

• Contribution Limits: In 2025, employees can contribute $22,500 per year to a 401(k) plan, with an additional $7,500 catch-up contribution for those aged 50 or older.
• Employer Matching: Many employers offer a matching contribution to encourage employees to save for retirement. For example, an employer may match 50% of the employee’s contribution up to 6% of their salary.
• Investment Control: Employees can choose how their 401(k) funds are invested, typically in stocks, bonds, and mutual funds, offering flexibility in how the funds grow.

Key Differences Between HSAs and 401(k)s

1. Tax Treatment

• 401(k): Contributions to a 401(k) are made pre-tax, which means you don’t pay taxes on your contributions until you withdraw the funds in retirement. However, any withdrawals for non-retirement purposes will incur penalties and taxes.
• HSA: The tax advantages of an HSA are even more substantial because contributions are tax-deductible, the money grows tax-free, and withdrawals are tax-free when used for qualified medical expenses. After age 65, you can withdraw funds for any purpose without facing penalties, though the withdrawals will be taxed if they aren’t used for medical expenses.

2. Contribution Limits and Catch-up Contributions

• 401(k): As of 2025, individuals under 50 can contribute $22,500 to their 401(k), while those over 50 can contribute an additional $7,500 in catch-up contributions.
• HSA: The contribution limits for HSAs are significantly lower than 401(k)s, with individuals allowed to contribute $3,650 annually and families $7,300. However, catch-up contributions of $1,000 are available for individuals 55 or older.

3. Investment Control and Risk

• 401(k): A 401(k) allows employees to choose their investments, ranging from stocks and mutual funds to bonds and ETFs. While this provides flexibility, it also means employees bear the investment risk.
• HSA: Similar to a 401(k), some HSA providers offer investment options like mutual funds, but these options are generally more limited than those available through a 401(k). Additionally, the risk associated with HSA investments falls on the account holder.

4. Withdrawals

• 401(k): Withdrawals from a 401(k) are typically taxed as income and incur a 10% penalty if taken before the age of 59 ½, unless it’s for specific exceptions like medical expenses or buying a home.
• HSA: If you withdraw funds for qualified medical expenses, they are tax-free. After age 65, you can withdraw funds for non-medical purposes without penalty, though they will be taxed as ordinary income.

Why Some People Are Choosing HSAs Over 401(k)s?

1. Tax-Free Growth and Withdrawals

The tax-free growth and withdrawals of an HSA make it an attractive option for those seeking long-term savings. Unlike a 401(k), which only offers tax-deferred growth and taxed withdrawals, HSAs offer the potential to grow your savings without worrying about taxes.

2. Flexibility for Health and Retirement Savings

Many choose HSAs because they provide the flexibility to save for healthcare expenses and retirement. While the funds in a 401(k) are locked into retirement savings, HSAs can be used for medical expenses at any time, and after age 65, they can be used for any purpose without penalty (though taxed if not used for medical expenses).

The Current State of HSAs and 401(k)s in America

How HSAs are Gaining Popularity

In recent years, HSAs have become increasingly popular due to the rising costs of healthcare. In 2025, over 30 million Americans will be enrolled in HSA-eligible plans. This rise can be attributed to the tax advantages and flexibility of using HSAs for both short-term healthcare costs and long-term retirement planning.

On the other hand, 401(k) plans continue to be America’s primary source of retirement savings. According to Pew Research, 401(k) plans are offered to over 60% of U.S. workers, and the majority of employees opt for this retirement vehicle, given the contribution limits, matching contributions, and investment flexibility they offer.

Pain Points in Retirement Planning Today

1. Rising Healthcare Costs

As the cost of healthcare continues to rise, individuals are looking for more ways to save for long-term healthcare expenses. According to a Fidelity study, a 65-year-old couple can expect to spend approximately $300,000 on healthcare during retirement. This makes HSAs an attractive option, as they can be used for both short-term healthcare expenses and as a long-term savings tool.

2. Insufficient Retirement Savings

Despite the popularity of 401(k) plans, many Americans still aren’t saving enough for retirement. According to the U.S. Federal Reserve, approximately 40% of adults have no retirement savings. For those who save, 401(k) plans are often insufficient to guarantee a comfortable retirement, with many workers relying on Social Security as a primary income source.

Tips for Maximizing the Benefits of an HSA

1. Contribute to Your HSA Early and Often

One of the most significant advantages of an HSA is its tax-free growth. To take full advantage of this, it’s important to contribute regularly. Even if you don’t need the funds immediately, contributing the maximum amount each year will allow your money to grow tax-free.

2. Use Your HSA as a Long-Term Investment Tool

Many individuals view HSAs solely as a way to pay for healthcare expenses. However, the long-term potential of an HSA can be just as valuable as a 401(k), especially once you turn 65. The funds in your HSA can be used for any purpose at that point, making it a flexible retirement savings vehicle.

How Beem Can Help You Safeguard Your Money

While planning for retirement and managing healthcare costs are essential, your day-to-day financial well-being is just as important. Beem offers a range of tools to help you balance both long-term and short-term savings. Whether you’re looking to optimize your 401(k) contributions or need to manage unexpected expenses, Beem’s Everdraft™ lets you withdraw up to $1,000 instantly and with no checks. Moreover, Beem’s budgeting tools help you track spending, manage emergency funds, and stay on top of your savings goals to ensure that your immediate and long-term financial health is on track.

Conclusion

Choosing between a 401(k) and an HSA is ultimately a personal decision that depends on your goals and financial situation. HSAs provide substantial tax advantages and flexibility, making them an excellent choice for healthcare savings and retirement. However, 401(k)s remain the gold standard for retirement savings, offering the potential for higher contributions and investment opportunities.

By evaluating your healthcare needs, retirement goals, and current financial situation, you can make the best decision about which account suits your needs. And as you continue building your savings, tools like Beem can provide the guidance you need to balance your short-term expenses with long-term savings goals. Download the app here.

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