For many young to mid-career physicians, a common feeling is that they are “behind” on saving for future goals like retirement, and that they are paying an exorbitant amount of tax. And, both feelings can be empirically true, as most physicians will spend 7 to 12 (!) years AFTER college completing education and training requirements to become an attending physician. Not only that, but by the time they start earning substantial income in their early to mid 30s, they can find themselves paying 40% or more of their income towards tax!
These two realities highlight the need for physicians to maximize contributions to tax-favored accounts wherever possible.
One of these strategies if for physician households to fund a Health Savings Account (HSA). In addition to funding the HSA with the maximum amount each year, the plan should also include a strategy to invest these funds and preserve them for future use. Health Savings Accounts carry these valuable tax treatment benefits:
- Contributions to an HSA are tax-deductible. (In 2025, the maximum contribution for a married filing jointly household is $8,550, and $4,300 for a single taxpayer) For a physician in the highest federal tax bracket, an $8,550 HAS contribution would save them over $3,000 in income taxes that year alone!
- Funds in an HSA grow tax-free, like a 401k or Roth IRA.
- Funds in an HSA can be withdrawn tax-free at any time to be used for qualified healthcare expenses.
- After age 65, funds can be withdrawn from an HSA for any reason, and only income tax is paid, and HSA funds do not have required minimum distributions.
Compared to a taxable investment, funding an HSA over a 30 year period could result in over $550,000 in tax efficiency gained over 30 years!
*$968,571 in HSA funded at $8,550 for 30 years at 8%
*$409,631 in taxable account 5,557 (assumes 35% fed tax rate) invested for 30 years at 5.6% ROR after tax
It’s important to note that there are several critical considerations for anyone PRIOR to committing to funding an HSA:
- An HSA is ONLY available to someone who is ALSO enrolled in a high-deductible health plan.
*For a household with dual employers, special consideration must be given to what medical insurance plan best fits the household, and what family members should be covered by which plan. - Health Insurance choices should not be made solely based on financial and tax implications related to funding an HSA. Access and peace of mind about medical care should always be a primary consideration.
- By definition, a high deductible health plan has a high deductible – this inevitably means that out-of-pockets costs for healthcare will be higher than with a more traditional (i.e. HMO or PPO) healthcare plan. Careful consideration must be given to what the deductible is, what the out of pocket maximum is, and how cash flows may be affected.
- Finally, another benefit of a high deductible health plan is that in nearly every case, the annual premium cost is LOWER for the employee, and in many cases, the employer will make a contribution to the HSA on behalf of the employee.