What a Medical Savings Account Is

A Medical Savings Account (MSA) is a tax-advantaged savings account paired with a high-deductible health insurance plan. You put pre-tax money into the account, use it to pay medical bills, and the money you don't spend stays in the account and grows tax-free. Unlike a flexible spending account (FSA) at work, which you lose if you don't spend the money by year-end, an MSA rolls over year to year — the balance is yours to keep.

There are two types of MSAs: Archer MSAs, which are older and rarely available anymore, and Health Savings Accounts (HSAs), which are the modern version most people encounter. This guide focuses on HSAs because they are what you will actually find when you shop for coverage.

The basic trade-off is this: you choose a health plan with a higher deductible (the amount you pay out of pocket before insurance kicks in), and in exchange, you get to set aside money in a tax-sheltered account to cover those costs yourself.

Key Takeaways

  • You must be enrolled in a high-deductible health plan to open an HSA, and you cannot be covered by other health insurance or claimed as a dependent on someone else's taxes.
  • Money you contribute reduces your taxable income, grows tax-free, and can be withdrawn tax-free for may have access to medical expenses like deductibles, copays, prescriptions, and dental work.
  • Unlike FSAs, HSA money rolls over year to year and belongs to you even if you change jobs or retire.
  • After age 65, you can withdraw money for any reason without penalty, though non-medical withdrawals are taxed as income.
  • You control the account — you choose the bank or investment company, decide how much to contribute each year, and keep all receipts to prove expenses are medical.

Who Can Open an HSA and When

To open an HSA, you must be enrolled in a high-deductible health plan (HDHP). The IRS sets the minimum deductible each year — for 2024, it is $1,600 for individual coverage and $3,200 for family coverage, though plans often have higher deductibles. You can open an HSA through your employer if they offer one, or you can open one on your own through a bank or investment company if you buy your own insurance.

You cannot have an HSA if you are also covered by another health plan (with limited exceptions for accident or dental-only coverage), if you are enrolled in Medicare, or if someone else claims you as a dependent on their tax return. If you lose coverage or gain other insurance mid-year, you can still contribute to your HSA for that year, but the rules about how much are complex — it is worth checking with the account provider or a tax professional if your coverage changes.

You can open an HSA at any time during the year, but contributions for a given tax year must be made by the tax filing important date (usually April 15) of the following year.

How Much You Can Contribute Each Year

The IRS sets annual contribution limits, which change slightly each year. For 2024, you can contribute up to $4,150 if you have individual coverage or $8,300 if you have family coverage. If you are 55 or older, you can contribute an extra $1,000 per year as a catch-up contribution. These limits explore to all your HSAs combined — if you have more than one account, the total across all of them cannot exceed the limit.

You decide how much to contribute within that limit. If your employer offers an HSA, they may contribute on your behalf, and that counts toward your limit. You can change your contribution amount once a year during open enrollment, or if you have a may have access to life event (like losing other coverage or changing jobs).

Contributions are deducted from your paycheck before taxes if your employer runs the account, which means you do not pay federal income tax, Social Security tax, or Medicare tax on that money. If you open an HSA on your own, you deduct the contribution on your tax return.

What You Can Use the Money For

HSA money can pay for may have access to medical expenses — a specific list defined by the IRS. This includes your health plan deductible, copays, coinsurance, prescription medications, dental work, vision care, mental health treatment, and medical equipment like crutches or hearing aids. It also covers some services insurance does not, like acupuncture or chiropractic care, as long as a doctor prescribed them.

The IRS list is long and detailed. Over-the-counter medications like pain relievers or allergy medicine count only if you have a prescription. Vitamins and supplements do not count unless they treat a specific medical condition. Cosmetic procedures do not count, but reconstructive surgery after an injury does. If you are unsure whether an expense qualifies, the account provider usually has a searchable database, or you can check IRS Publication 502.

You do not have to spend the money in the year you contribute it. Unlike an FSA, which you lose if you do not use by December 31, an HSA balance carries forward indefinitely. This makes it useful as a long-term savings tool — you can let the money grow and use it years later.

How the Account Grows and How You Access the Money

When you open an HSA, you choose where to hold it — at a bank, a brokerage, or an insurance company. Some accounts work like savings accounts and earn a small interest rate. Others let you invest the money in stocks, bonds, or mutual funds, which means the balance can grow faster but also fluctuate. Many accounts have both options: a low-interest savings portion for money you plan to use soon, and an investment portion for longer-term growth.

To withdraw money for a may have access to medical expense, you request a withdrawal from the account. Some accounts give you a debit card linked to the HSA, which you can use at pharmacies or medical offices. Others require you to pay out of pocket and then request reimbursement from the account. Either way, you need to keep receipts and documentation proving the expense was medical and the date it occurred.

If you withdraw money for a non-may have access to expense before age 65, you pay income tax on the withdrawal plus a 20 percent penalty. After age 65, you can withdraw money for any reason without the penalty, though non-medical withdrawals are taxed as regular income. This is why some people use HSAs as retirement accounts — the money grows tax-free, and after 65 it works like a traditional IRA.

What Happens to Your HSA If You Change Jobs or Coverage

Your HSA belongs to you, not your employer. If you leave your job, the account stays yours. You can keep it open at the same institution, move it to a different bank or brokerage, or roll it into a new HSA — the process is similar to rolling over a retirement account. The money is always yours to use for medical expenses, regardless of where you work next.

If you change to a health plan that is not a high-deductible plan, you can no longer contribute new money to the HSA, but you can still withdraw from it for medical expenses. If you later re-enroll in an HDHP, you can start contributing again. Some people keep an HSA open for years after leaving an HDHP, using it as a medical expense fund.

If you move to Medicare, you can no longer contribute to an HSA, but you can still withdraw for medical expenses. After age 65, you can withdraw for any reason. Many people use their HSA to pay Medicare premiums, deductibles, and copays in retirement.

The Trade-Off: Higher Deductible for Tax Savings

The reason HSAs exist is to encourage people to choose higher-deductible plans and manage their own medical costs. The tax savings — no federal income tax, Social Security tax, or Medicare tax on contributions — can be substantial. If you contribute $3,000 per year and are in the 22 percent federal tax bracket, you save about $660 in federal taxes alone, plus 15.3 percent in self-employment tax if you are self-employed.

But this only makes sense if you can actually afford the higher deductible. If you have chronic health conditions, take multiple medications, or expect significant medical expenses, a plan with a lower deductible and higher premium might cost less overall, even without the HSA tax break. The math is different for everyone — it depends on your health, your income, and how much you expect to spend on medical care in a given year.

An HSA is most useful if you are relatively healthy, expect modest medical expenses, and want to save for future healthcare costs. It is less useful if you need frequent medical care or cannot afford to pay a large deductible upfront.

Frequently Asked Questions

Can I use HSA money to pay my health insurance premium?

No, with one exception: you can use HSA money to pay Medicare premiums, COBRA premiums, or long-term care insurance premiums if you are unemployed and receiving unemployment benefits. You cannot use it to pay regular health insurance premiums while you are working. You can use it to pay the deductible, copays, and coinsurance under your plan.

What happens if I withdraw money and later find out it was not a may have access to expense?

You owe income tax on the withdrawal plus a 20 percent penalty. The account provider does not police what you spend on — you are responsible for keeping receipts and knowing the rules. If you make a mistake, you can correct it by putting the money back into the account, but you need to do this quickly and may need to file an amended tax return.

Can I have an HSA and an FSA at the same time?

Generally no. If your employer offers an FSA, you cannot have an HSA in the same year. The exception is a limited-purpose FSA that covers only dental and vision expenses — you can have that alongside an HSA. Check with your employer's benefits office about what they offer.

Do I have to spend my HSA money by a certain age?

No. HSA money does not expire, and you do not have to withdraw it by any age. After 65, you can withdraw for any reason. Some people let the balance grow for decades and use it to pay medical expenses in retirement.

What if I never use all the money in my HSA?

It stays in the account and is yours. You can pass it to your heirs when you die — they will owe income tax on it, but it does not disappear. This is one reason HSAs are sometimes used as retirement savings vehicles rather than just medical expense accounts.