Maximizing your HSA for family members under 26

A father showing his son how to set up a HSA

Using Health Savings Accounts (HSAs) as a tax planning tool has gained popularity, especially with provisions under the Affordable Care Act allowing children up to age 26 to establish their own HSAs. The tax-advantaged framework of HSAs makes them a versatile tool for planning your financial present and future.

How to make the most of your family’s HSA setup


Making the most of your family's HSA setup doesn't have to be a challenge. In most cases, a non-dependent child on your plan can set up their own HSA and start making contributions. Better yet, you can too. All the while you'll be setting yourself up to grow your account for tax-free deductions on eligible expenses.

Understanding the Tax Benefits of HSAs

HSAs offer three tax advantages: you get to deduct eligible contributions to your plan, grow your account tax-deferred, and withdrawals are tax-free when used for qualified healthcare costs. If you withdraw from your HSA for non-qualified medical expenses, you'll encounter a 20% penalty and pay ordinary income tax on the amount distributed. However, people over 65 can withdraw penalty-free for any reason, and the funds withdrawn are treated like taxable ordinary income.


The tax benefits don't stop there. Since children under 26 years old can remain on their parents' healthcare coverage, they too are eligible to open their own HSAs. Plan holders are limited to contributing $3,850 ($7,750 for family coverage) in 2023. Adult children, however, have their own $7,750 limit. This doubles the amount one family can contribute toward HSA. Parents can contribute on their child’s behalf as well (as a gift), while still allowing the child to receive the tax deduction on their own tax return. Thus, the parents can contribute $7,750 to their own HSA as well as contribute $7,750 to their child’s HSA for the year.


There are 4 general requirements that must be met for an individual to be eligible to make HSA contributions:

1. You are covered under a high-deductible health plan (HDHP),
2. You have no other health coverage,
3. You can’t be claimed as a dependent on someone else’s income tax return, and
4. You are not enrolled in Medicare.

Making the Most of Your HSA Contributions

To maximize your HSA's effectiveness, it's important to approach your contributions strategically. Timing matters: the earlier in the year you can contribute, the more time it has to grow in your account. This can help your account benefit more from compounding interest. 


Be sure you're setting up an account for every eligible family member. You and your spouse share an account, but your adult children are each eligible for their own. Tax benefits multiply when you're able to set up accounts for one or more non-dependent children.


Some employers provide incentives to get employees to open HSAs, such as making matching contributions up to a certain percentage of what you put in your account. Check with your Human Resources department to find out more. If your employer does contribution matching, try to at least meet the matching percentage level to take advantage of these additional funds. 

Tax Planning Considerations and Professional Guidance

As with any tax-related financial decisions, be sure to reach out to professionals for their guidance. Tax experts and financial advisors can help you make sense of your options, how your HSA fits into your broader financial plans, and other unique considerations you may have. Tax laws and HSA provisions may change from year to year, so it's critical to keep yourself apprised of any changes and their impact on your strategy. Their expertise will ensure you make informed decisions and maximize the benefits of your HSA.

The Bottom Line

Your HSA can do so much more than help pay for medical expenses. If your non-dependent adult children are on your high-deductible health plan, they may be eligible to open an HSA of their own. Doing so helps unlock tax and savings advantages that go beyond the doctor's office. You can use your HSA as a tax optimization tool, a retirement account, and much more.


It's essential to stay informed of the rules and regulations surrounding HSA contribution limits and relevant tax laws. The right financial partner can help you make sense of legislation, pending changes, and what's ahead for HSAs and other financial products.