Maximizing HSAs: The key to staving off a retirement shortfall (especially for women)

There are significant gaps in the way women and men are investing in their Health Savings Accounts (HSAs), a new study from the Bank of America has found.

The report, “2023: Gender Lens in Health Savings Accounts,” looked at utilization rates, contribution rates, withdrawals, and balances of HSA account holders, comparing the numbers for women and men.

The researchers noted that HSAs offer a “triple tax advantage”—that is, these funds are not subject to federal income tax for contributions, interest, and withdrawals. According to Lisa Margeson, managing director of retirement research and insight at Bank of America, the study complements the bank’s work with 401(k)s, treating HSAs as a different kind of savings vehicle. “HSAs hold an important spot as a benefits program to help individuals prepare for retirement,” she said. She added that the Bank of America numbers show that more workers are investing for growth with their HSAs.

A slow growth in HSAs as investment accounts

Margeson said that trend is increasing over time, although slowly. “The numbers are ticking up over the years,” she said. “So it’s growing slowly, but it’s going in the right direction.” In 2022, 12% of account holders were investing for growth, compared to 9% in 2020, according to Bank of America research. In addition, the 2020 data showed that about 25% of account holders were putting more into their HSAs than they were withdrawing; that number had grown to 38% by 2022.

In some ways, the study found, men and women are similar in their use of HSAs. For example, women’s and men’s utilization rates were comparable. The number show that 85% of those women who held an HSA account had a balance, had contributed to, or withdrawn from their HSA account. That utilization rate for men was slightly higher, at 89%.

The numbers of account holders making an HSA contribution was also similar between women and men; approximately 70% of women made a contribution; that number was 72% for men. The number of participants who made the maximum contribution into their accounts was small: 8.58% for women compared to 8.05% for men.

Women more likely to take money out, and save less on average than men

In other areas, the differences were a bit more notable. Women were more likely to take money out of their HSAs—in 2022, 67% of women took a distribution from their HSA account, versus 64% of men. Older participants were more likely to take a distribution—70% of baby boomers compared with 56% of millennials and 33% of Generation Z (the youngest cohort).

About 50% of HSA participants reported having net savings at the end of the year in their HSA accounts, but men had slightly higher rates (53%) than women (50%).

“The median HSA net dollar saving is only $1 for women versus $47 for men,” the report said. “The average HSA net saving is $512 for women versus $640 for men: 25% of participants withdrew more than they contributed in 2022. Across generational groupings, saving was lower for women than for men.”

The report noted that both men and women tended to hold a significant part of their account balance in cash or highly liquid investments, not taking advantage of their HSAs’ investment potential. “Few participants invested their HSA balance despite the tax-saving possibilities and the potential to build savings to cover future health care costs,” the report said. “Fewer than one in five participants maintained an investment balance.”

On average, the HSA cash balance for women was lower than the HSA cash balance for men. The study found an average cash balance of $2,800 among women, and $3,200 among men.

Unequal pay leads to unequal savings

The stubborn inequities in pay for women as compared to men has an effect down the line, Margeson said. “Certainly the gender pay gap still exists,” she said. “If you have a male and a female, each contributing 5% of their HSA, the pay gap means that there’s going to be a smaller dollar amount contributed [for women].”

Related: Supporting employees’ retirement journey: The power of the HSA

“We also still see more women dealing with career interruption, with caregiving, even paying off student loans, who could potentially be tapping into their savings, or pulling out money to pay for medical expenses that are happening—as opposed to saving it,” Margeson said. The Bank of America report encourages investors to see HSAs as part of an overall savings strategy. “By diversifying investments in your HSA, you can take advantage of the long-term savings possibilities of an HSA,” it said. “Over time it can potentially build up your balance for unexcepted major medical expenses at different life stages.”

The takeaway for employers, Margeson said, is to emphasize education on HSAs. “It’s really important to educate early and often on this very important component of retirement plans. Not only how an HSA works, but its clear value in having it as part of a longer-term plan to save for retirement.”