If you’re covered under a high-deductible health plan, maximizing your HSA family contributions is a great way to accumulate savings and shelter money from the IRS at the same time.
In fact, maxing out your HSA contribution for the year is one of the most tax-efficient things you can do: No other investment or savings vehicle combines the triple tax advantages of the health savings account all in one vehicle:
- Pre-tax contributions
- Tax-deferred growth
- Tax-free withdrawals for qualified medical expenses
But if you have family members aged 18 through 25, there’s a little-known way to set aside even more money on a tax-advantaged basis: The HSA Family Loophole.\\\\
This blog post will walk you through the loophole, explain what it is, how to use it, and how to maximize your long-term tax savings for you and your family.
The HSA Family Loophole Explained
The HSA Family Loophole is a unique benefit for families with adult children under 26.
If your child is covered under your HSA-qualified health plan, but is no longer your tax dependent, they may open their own Health Savings Account (HSA).
This allows them to make HSA contributions independently, while you continue contributing to your own HSA.
Here’s why this matters:
- Separate Contribution Limits. Each HSA has its own annual limit. So if you have an HSA with your spouse, you can jointly make a tax-advantaged contribution up to $8,550. But your adult child on your plan is allowed to open his or her own HSA –– and make his or her own pre-tax contribution.
- Double the Tax Benefits. Both accounts receive tax advantages, including tax-deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified expenses.
- Increased Savings Potential.This loophole effectively doubles the family’s HSA savings potential –– all while maintaining your current health coverage.
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Can My Adult Child Open an HSA?
If your adult child meets these requirements, they can open their own HSA and make their own HSA contributions:
- Enrolled in an HSA-Qualified Plan. You and your child must be covered by a high-deductible health plan (HDHP).
- Not Claimed as Your Dependent: Your child cannot be listed as your tax dependent.
- No Other Coverage. They cannot be enrolled in another non-HDHP plan or Medicare.
- Age. Your child will age out of your plan when they turn 26. However, this cutoff may not apply if your adult child has a disability.
This setup lets your child take full advantage of HSA benefits while on your plan.
How Much Can Your Child Contribute?
Your child can make an HSA contribution of up to $4,300 for 2025.
Their contributions do not affect your ability to contribute to your own HSA. They are not counted against your limit. And your contributions are not counted against their eligibility either.
This flexibility makes HSAs an excellent tool for families to save for healthcare costs or future expenses.
Benefits for Younger and Healthier Individuals
- Decades of Potential Tax-Advantaged Growth: If your adult child opens an HSA at 25 and invests consistently, they could have decades of tax-free growth before needing withdrawals.
- Reduced Immediate Medical Costs: Healthy individuals often have minimal medical expenses, allowing more funds to stay invested.
- Retirement Savings Boost: After age 65, HSA funds can be used for non-medical expenses without penalties (though withdrawals will be taxed).
Example:
Let’s say your adult child invests $3,000 annually in their HSA, chooses to invest it in an equity index fund, and earns an average annual return of 7% over 30 years.
At that rate, their HSA would hypothetically grow to over $300,000—tax-deferred. That money could cover medical expenses as needed, tax free, or supplement their retirement income on a tax-deferred basis, much like a traditional IRA.
Note: Investing involves risk. You could potentially lose money by investing in the market–especially in the short run. HSA for America does not provide investment advice. So be sure to make investment decisions with the advice of a qualified financial professional.
Why Your HSA Family Contributions Matter
Over time, your combined HSA family contributions compounding over time can transform your account from a simple savings vehicle into a long-term strategic financial asset.
Younger individuals with time on their side can take full advantage of compounding returns, maximizing their health and retirement savings. In fact, the younger they start, the more powerful the effects of tax-advantaged compounding over time.
HSA Secure – An Affordable HSA-Eligible Health Sharing Alternative
If you’re self-employed, an independent contractor, or a business owner, you can enroll in the HSA Secure plan.
This is a much more affordable non-insurance health sharing alternative to overpriced, bloated traditional health insurance products. And it still allows you and other covered family members to make HSA contributions.
To learn more about HSA Secure, click the link above, or contact an HSA for America Personal Benefits Manager for a free custom quote.
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Take Advantage of the HSA Family Loophole Now!
The HSA Family Loophole is a powerful way to save and plan for future healthcare needs.
But the benefit doesn’t last forever: Once your adult child turns 26, they’ll age out of your HDHP, and may lose HSA eligibility altogether.
And you only have until April 15th to make contributions for the previous tax year.
If you and your family aren’t exploiting this loophole now, and making contributions to both the parental HSA and the adult child’s HSA, you may lose the opportunity for good.
To learn more, or to get help enrolling, just schedule a free appointment with a Personal Benefits Manager today!
For Further Reading:
Hi! I’m Mike Montes, and I’m one of your Personal Benefits Managers. I like working with HSA for America because we’re creating solutions to healthcare problems. Our focus on money-saving alternatives like HSA plans and health sharing programs, and the variety of health share programs we offer, are what set us apart. Read more about me on my Bio page.
