You switch jobs in March, keep contributing to your new HSA at the pace you always have, and don't think about it again until tax season. That's when you find out: both employers funded the same account, and you put $1,600 more into it than the IRS allowed for the year.
An HSA is one of the only accounts where money goes in tax-free, grows tax-free, and comes out tax-free for medical bills. That's the entire pitch, and it holds up. But the rules underneath it are stricter than they look, and a handful of ordinary moves can quietly cost you hundreds or thousands of dollars without you ever doing anything that feels reckless.
None of the mistakes below involve carelessness. They involve not knowing a rule existed until it already cost you.
Letting your balance sit in cash instead of investing it
Most people treat their HSA like a checking account, which is a problem because that cash usually earns next to nothing while it sits there. As of mid-2025, fewer than 1 in 10 HSA accounts had any money invested in stocks, bonds, or mutual funds, even though most providers let you do it once your cash balance clears a small minimum.
That gap matters more than it sounds like it should. Cash in an HSA earns whatever low rate the bank pays. Money you invest grows tax-free the same way a 401(k) does, and if you're not planning to spend it for years, leaving thousands of dollars parked flat in cash quietly costs you the difference between a savings account return and real market growth, compounded over a decade or two.
Find out what your provider's investment minimum actually is, then treat that number as the floor, not something to aim for. Everything above it can be working instead of sitting still.
Spending HSA money on something that was never going to qualify
An HSA debit card swipes just like any other card, which makes it easy to forget that the IRS has a strict definition of what the money is actually for. Gym memberships, vitamins and supplements taken for general health, cosmetic procedures, and teeth whitening are common purchases that feel medical but typically don't qualify, even when a doctor casually recommends them.
Use the card for one of these anyway and you're not just out the money. If you're under 65, the withdrawal gets hit with income tax plus a 20% additional tax on top, the same penalty that applies to an early retirement account withdrawal.
Before buying something borderline, ask whether it treats a diagnosed condition or just supports general health. A gym membership prescribed in writing by a doctor for a specific diagnosis can sometimes qualify. The same membership bought because you want to get in shape never does.
Overcontributing because you didn't prorate after a coverage change
If you only had HSA-eligible coverage for part of the year, your contribution limit shrinks to match, and skipping that math is one of the easiest ways to overfund the account by accident. Have family coverage for eight months, then switch to a plan that doesn't qualify, and your limit for that year is roughly eight-twelfths of the family maximum, not the full $8,750.
This trips people up most often around job changes, a switch from family to individual coverage, or the IRS's last-month rule, which lets you contribute the full annual amount if you're eligible on December 1, but only if you stay eligible through the following December. Break that condition and the IRS adds the extra contribution back into your income, plus a 10% penalty.
Either version creates an excess contribution, and excess contributions get hit with a 6% excise tax for every year they stay in the account, not just once.
Topping off your HSA in the months before you enroll in Medicare
If you delay signing up for Medicare past 65 because you're still working and covered by an employer plan, the moment you do enroll, coverage can apply retroactively for up to six months, though never earlier than the month you turned 65. Any HSA contribution made during that retroactive window turns into an excess contribution, even though it felt completely legal when you made it.
This catches people off guard because nothing about the contribution felt wrong in the moment. You were still working, still on the HDHP, still eligible, until Medicare reached back and erased your eligibility for months you'd already counted.
The fix is simple once you know about it: stop contributing to your HSA around six months before you plan to apply for Medicare or Social Security retirement benefits. If the lookback has already caught you, withdraw the excess plus any earnings before your tax filing deadline and skip the 6% penalty entirely.
Never naming a beneficiary, or naming the wrong one
Naming a beneficiary on an HSA gets skipped constantly, probably because it feels like a formality compared to a will or a 401(k). It isn't. If your spouse is the named beneficiary, the account simply becomes their HSA the day you die, and they keep every tax advantage you had.
Name anyone else, a child, a sibling, your estate, and the account stops being an HSA immediately. The entire balance becomes taxable income to that person in the year you pass away, all at once, which can push them into a tax bracket the money would never have justified in a normal year.
If you haven't named anyone, most providers default to your spouse if you're married or your estate if you're not. Checking who's currently listed takes a few minutes online and can spare whoever inherits the account a tax bill far bigger than it needed to be.
Throwing away your receipts
Here's the part most people don't know about HSAs: there's no deadline to reimburse yourself for a qualified medical expense. Pay a $200 dental bill out of pocket today, let your HSA keep growing untouched, and pull that $200 back out tax-free five, ten, or twenty years from now, as long as you can prove the expense happened after you opened the account.
That flexibility is exactly why losing your receipts is so costly. Without proof, the IRS can treat a later withdrawal as a non-qualified distribution if you're ever audited, which means income tax plus a 20% penalty on money that should have come out completely clean.
Keep a folder, paper or digital, with the date, provider, amount, and a short description of each expense. It doesn't need to be elaborate. It just needs to exist if anyone ever asks.
Letting a forgotten old HSA get nibbled away by fees
Most large HSA providers charge a monthly maintenance fee, usually a few dollars, and plenty of employers quietly cover that fee while you're still on the payroll. Leave the job and that subsidy often disappears with you. One major provider raises its fee from $2.95 to $3.95 a month the moment you separate from your employer or switch health plans, and the charge keeps pulling from your balance until someone notices.
It sounds small until you do the math over time. A few dollars a month adds up over a decade, and the cash needed to clear most fee-waiver thresholds usually can't be invested at the same time, so you end up choosing between dodging the fee and growing the balance.
If you have an old HSA from a job you left years ago, log in and check what's actually happening to it. Plenty of people are funding a forgotten account's maintenance fee without realizing it's even still open.
Switching jobs and accidentally funding two HSAs past the limit
Every dollar that goes into your HSA counts toward the same annual limit, no matter who put it there or how many employers were involved. Switch jobs mid-year and both your old and new employer fund an HSA for you, on top of your own payroll contributions at each one, and it's startlingly easy to blow past the cap without anyone flagging it in real time.
This is different from the proration mistake above. You might have HSA-eligible coverage the entire year, so your annual limit doesn't shrink at all, but the total dollars landing in the account from multiple sources can still add up to more than that limit allows.
Check your running total any time your HSA situation changes, a new job, a new health plan, a spouse opening their own HSA. Don't assume your old employer's contribution and your new one will happen to add up to something reasonable.
