The HSA loophole offers a smart way to save more on healthcare while keeping more of your money tax-free.
Health Savings Accounts (HSAs) are one of the most powerful tax savings and wealth accumulation tools in the tax code.
No other savings vehicle can match the triple tax advantages of the health savings account. HSAs offer pre-tax contributions, tax-deferred growth, and tax-free withdrawals to pay for qualified medical and dental expenses.
Taken together, these compelling tax advantages essentially allow HSA owners to pay for their out-of-pocket medical expenses tax-free.
So that’s a compelling reason to enroll in a high deductible health plan (HDHP). so you can make these pre-tax contributions and start building a health care savings account. As of 2025, anyone eligible can contribute up to $4,300 for an individual plan, and up to $8,550 for family plans.
But understanding a few loopholes can help you squeeze even more value out of your HSA. Especially if you have adult children on your medical plan, or if you or your spouse are approaching age 65.
The Adult Child HSA Loophole
Under the Affordable Care Act, you can keep your adult child on your plan until age 26.
If you’re in an HDHP, your child files their own return, and isn’t a dependent, they can open their own HSA!
Here’s How it Works:
- They can contribute up to the family HSA limit ( $8,550 in 2025).
- Even single adult children qualify for the family contribution limit.
- Contributions can come from anyone—you, your child, or even grandparents, aunts and uncles.
This strategy allows your adult child to enjoy tax-free contributions, growth, and withdrawals for medical expenses. And because your adult child is still young, there are many years of potential compounding.
Furthermore, these contributions don’t count against your child’s eligibility to contribute to an IRA. Your child can potentially contribute to both an IRA (or Roth IRA) and max out an HSA in the same year. And contribute to a 401(k), SIMPLE IRA, or 403(b).
Families can significantly boost savings using this loophole – all on a tax-advantaged basis.
If you’re in an HDHP and meet the other criteria, it’s a great way to maximize tax-free dollars.
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Why Use the Adult Child HSA Loophole?
Adult children often face high healthcare costs as they transition into full independence.
Contributing to an HSA not only reduces their taxable income but also provides a financial cushion for medical expenses.
True, most young people don’t have many medical expenses. But that works out great for the HSA: Once the money is in the HSA, your child will benefit from the potential for years of tax-deferred growth.
If they don’t need it for medical expenses? No problem! It doesn’t go to waste. There’s no “use it or lose it” provision. All that money becomes available penalty free to supplement their retirement at age 65.
And it’s still there to generate tax-free withdrawals to pay for medical expenses, even in retirement. There’s no time limit on how long you or your child can let your HSA assets compound.
And unlike with IRAs, HSAs have no required minimum distributions to worry about.
LEARN MORE: How Much Can an HSA Save in Taxes?
The Medicare HSA Loophole for Spouses
Once you turn 65 and enroll in Medicare, you can no longer make HSA contributions.
Yes, you can still make tax free and penalty withdrawals to pay for medical expenses and even to pay long term care insurance premiums. And you can make penalty-free withdrawals for any reason you like. You’ll just have to pay income tax on the money you withdraw, as you would with an IRA or 401(k).
But you yourself can no longer make HSA contributions once you turn 65.
But your spouse can!
If your spouse is under 65 and covered by an HDHP, they can still continue to make HSA contributions. And that money can be used tax free to pay qualified medical expenses or dental expenses, or to pay long-term care insurance premiums for either of you.
To sum up:
- The 2025 family contribution limit is $8,550.
- If your spouse is 55 or older, they can add a $1,000 catch-up contribution.
- HSA funds can pay for qualified expenses for both spouses, even if one is on Medicare.
Why Take Advantage of the HSA Medicare Loophole?
Many couples assume Medicare enrollment ends their HSA opportunities.
By shifting contributions to the younger spouse, families can continue to save tax-free dollars. This is particularly important for covering out-of-pocket Medicare expenses like deductibles, copayments, and prescriptions.
HSA Contribution Limits for Spouses
| Status | Contribution Limit (2025) |
|---|---|
| Family coverage | $8,550 |
| Individual (under 55) | $4,300 |
| Individual (55 or older) | $5,300 |
Additionally, HSAs enjoy substantial creditor protection. Any money you move into an HSA is exempt from creditor claims. Your creditors may be able to garnish your wages or seize financial assets held in your own name. But they can’t touch most IRAs, 401(k)s, or health savings accounts.
With an HSA, and any of these other account types, your money is held by a custodial firm for your benefit, but separate from your own assets.
So a creditor can get a judgment against you. But they can’t seize that money, as long as it stays in your HSA or other protected account.
The “Family Coverage” Rule After Medicare Enrollment
If the Medicare-enrolled spouse is the primary participant on the HDHP, the other spouse can still contribute to an HSA.
This allows the younger spouse to continue saving for healthcare expenses tax-free. However, it’s important to check contribution limits based on coverage status.
How it Works:
- If the HDHP qualifies as family coverage, the younger spouse can contribute up to the family limit ($8,300, as of 2025) to the IRA.
- If the coverage drops to individual status, the family limit drops to the individual limit is $4,300 in 2025.
The HSA Timing Strategy Loophole
There’s no time limit on when you need to take a withdrawal from an HSA to pay for any given medical expense. You can let your account compound tax-deferred for many years, and then take a withdrawal to compensate you for a medical expense that happened years ago.
You just have to have created the account before the medical event occurred.
For example, you can open your HSA in 2025, and have an appendectomy this year. If you pay $10,000 out-of-pocket (e.g., your deductible and coinsurance), you can pay that bill with other money. That way, you can let your HSA money accrue tax-deferred for as long as you like.
You might do this if you’re currently in a low tax bracket, or your income is unusually low this year. You might also do this if you think you’ll be moving from a no-income-tax state like Florida to a high income tax state, like Hawaii.
Then, 20 years later, in 2026, when you’re in a much higher tax bracket, you can reimburse yourself that $10,000, tax-free.
But keep careful records. If the IRS audits you and you can’t map your HSA withdrawal to a specific qualified medical expense, you’ll end up paying needless taxes and penalties.
Get a free quote from your Personal Benefits Manager today to ensure you’re making the most of your HSA options. It’s your money—let us help you keep more of it as a little planning goes a long way toward maximizing tax savings.
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Conclusion
HSAs are flexible and tax-efficient tools for saving healthcare dollars.
Here’s a quick recap of some of these HSA-related loopholes:
- Adult Child Loophole—Adult children can contribute to their own HSAs at the family limit.
- Medicare Spouse Loophole—If one spouse is on Medicare, the other can still contribute to an HSA.
- Family Coverage Rule—Keep family coverage under the younger spouse to avoid reduced limits.
- The HSA Tax Timing Strategy Loophole. You don’t have to take your HSA withdrawal in the year incur a qualifying medical expense. You can delay your distribution as long as you like. That way, you can take it when you’re in a higher tax bracket.
A Personal Benefits Manager can help you identify opportunities, avoid common mistakes, and develop a strategy that works for your family. Whether you’re planning for Medicare, maximizing contributions, or helping an adult child get started with their HSA, our experts are here to guide you every step of the way.
Don’t leave money on the table! Contact a PBM and open an HSA today!
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