If you’re enrolled in an FEHB High Deductible Health Plan (HDHP), you have access to a Health Savings Account, and it’s one of the most versatile financial tools available to federal employees. Most people think of it as a way to cover medical bills. It’s actually much more than that.
How Your HSA Gets Funded
When you enroll in an HDHP, your plan automatically contributes a monthly amount to your HSA — sometimes called a premium pass-through. Annual amounts typically range from $750–$1,200 for self-only coverage and $1,500–$2,400 for self-plus-one or family plans, depending on your specific plan.
What You Can Contribute
Beyond what your plan contributes, you can add your own funds up to the IRS annual limit. For 2025, that’s $4,300 for self-only coverage and $8,550 for self-plus-one or family plans. If you’re 55 or older, you can contribute an additional $1,000 per year as a catch-up contribution.
Your voluntary contributions are tax-advantaged in three ways: they go in pre-tax (either through payroll deduction or as a deductible lump sum), they grow tax-free, and withdrawals for qualified medical expenses are never taxed.
Investing Your HSA Funds
Here’s where most people leave money on the table. Like an IRA, your Health Savings Account is managed through a financial services provider, which means your unused balance can be invested, not just saved. Depending on your provider, you may have access to a broad range of mutual funds, index funds, and other investment options, often a wider selection than what’s available through the TSP.
Money you don’t need for near-term medical expenses can be invested and left to grow, tax-free, for years or even decades. For federal employees who are relatively healthy, this creates an opportunity to build a meaningful tax-free reserve specifically earmarked for healthcare costs in retirement, when those costs tend to be highest.
What You Can Spend It On
HSA funds cover more than co-pays and major medical expenses. Over-the-counter medications, allergy medicine, feminine hygiene products, and hundreds of other everyday health items are all eligible. Your HSA can also be used in retirement to pay Medicare Part B and Part D premiums, as well as long-term care insurance premiums, expenses that add up quickly on a fixed income.
After Age 65
Before age 65, using Health Savings Account funds for non-medical expenses triggers a 20% penalty on top of regular income tax. After 65, that penalty disappears. Withdrawals for non-medical expenses are simply taxed as ordinary income, making the HSA function similarly to a traditional IRA once you reach that age, but with the added benefit that medical withdrawals remain completely tax-free.
Because you own the account, your HSA stays with you regardless of whether you change health plans or leave federal service entirely.
A Federal Retirement Consultant (FRC®) can help you build an HSA strategy that goes beyond just covering copays, including how to invest your balance for long-term growth.
