Financial experts often tout the three-pronged tax benefits of health savings accounts.
In order to maximize those tax benefits, financial advisors often make a recommendation along these lines: Pay out-of-pocket for today’s medical bills — rather than tapping the HSA immediately — if you can afford it.
Meanwhile, invest your HSA funds in the stock market to build up a potent tax-advantaged war chest. Then use those proceeds decades in the future to cover past out-of-pocket health costs — completely tax-free. They can even be used to pay yourself back for medical expenses incurred years prior.
But this advice is somewhat incomplete: To reimburse yourself later, you also need to save your receipts and other documentation for that old medical expense — or risk incurring taxes and penalties from the Internal Revenue Service during an audit, according to financial advisors.
It’s perhaps the “biggest thing” people overlook when it comes to HSAs, said Ryan Greiser, a certified financial planner and co-founder of Opulus, a financial advisory firm based in Doylestown, Pennsylvania.
“People are simply not organized and won’t keep detailed records so [that] if the IRS comes knocking, it’ll be audit proof for them, for decades,” Greiser said.
What are HSAs?
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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 a qualified medical expense such as doctor visits, prescriptions or medical equipment, among other things.
HSAs are available only to consumers with a high-deductible health plan, which employers have steadily adopted since the early 2000s.
About 31% of companies that offer health benefits to workers offered an HSA-qualified high-deductible health plan in 2025, according to KFF, a health policy research group. That’s up from 4% of employers in 2005.
Meanwhile, about 29% of workers covered by an employer-sponsored health plan were enrolled in an HSA-qualified high deductible plan in 2025 — a record high, according to KFF.
Consumers also turned to HSA-qualified plans more readily on the Affordable Care Act marketplace amid sharply higher premiums for 2026, according to health policy experts.
HSA assets swelled to $174 billion by the end of 2025, up from about $30 billion in 2015, according to Devenir, a company that provides investments for health savings accounts. More than 4 million accounts held at least $10,000 as of year-end 2025, it said.
About half of total HSA assets — $85 billion — are invested while the remainder is held in cash-like deposit accounts, according to Devenir.
“Investing HSA balances provides a unique, untaxed wealth-building vehicle for those who are aware of this option and have the means to do so,” KFF analysts wrote last year in a policy brief.
Why to keep HSA receipts
Financial advisors generally recommend that households with HSAs save at least enough in the account to cover their annual deductible.
This is the amount households generally must pay out of pocket before their insurance kicks in and starts to cover medical costs.
For households with the means to do so, it may be better to pay out of pocket for healthcare today rather than tap HSA funds, financial advisors said. This allows them to invest their contributions and save proceeds for future health expenses.
Account holders can also use the HSA as a quasi-piggy bank from which they can withdraw funds for unreimbursed medical bills incurred years ago — as long as the expense was incurred after the HSA was established. They also can’t have claimed that medical expense as a tax deduction in past years.
“Save all your receipts,” said Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners in Jacksonville, Florida.
Account holders can generally withdraw money from HSAs at any time, without needing to provide proof of a qualifying medical expense to the HSA account administrator, said McClanahan, a member of CNBC’s Financial Advisor Council.
However, the account holder does need to provide proof if the IRS conducts a tax audit in the future, McClanahan said. Without such proof, the IRS may treat the distribution as taxable and impose penalties and interest for underpayment, she said.
Any part of an HSA distribution not used to pay qualified medical expenses is included in gross income and is subject to an additional 20% tax, with some exceptions, according to the IRS.
The IRS generally has a three-year statute of limitations to audit a taxpayer after they file their annual tax return.
However, if the IRS finds “a substantial error,” it can lengthen the statute, up to six years total, according to the agency. And, the IRS can look back indefinitely if it suspects fraud, experts said.
Some ought to ‘just use it as you go’
Importantly for HSA account holders, taking a distribution from your HSA is what starts the time clock for the statute of limitations, Greiser said.
So, if you incurred an eligible medical expense at age 30 and reimburse yourself for the expense at age 60, the three-year statute of limitations would start at age 60 — meaning you’d have to keep documentation for more than 30 years, Greiser said.
People who don’t expect to keep those records over the long term may be better served using their HSAs more like a pay-as-you-go bank account for short-term medical expenses, rather than waiting years to reimburse themselves, he said.
“Forget the audit risk and organization risk and just use it as you go,” he said.
What documentation to save
Experts generally recommend keeping proof such as pharmacy receipts, bills from the doctor’s office, HSA statements, and claims information of an explanation of benefits from your insurance provider.
One major problem with keeping paper documents over the long term: They fade over time, McClanahan said.
She said she scans clients’ medical receipts to create a digital copy and also creates a spreadsheet to track an ongoing list of expenses for which clients can later reimburse themselves tax-free.
