You need a high-deductible health plan first

A Health Savings Account (HSA) is not something you can open on its own. You must be enrolled in a high-deductible health plan (HDHP) through your employer, the individual market, or Medicare Advantage. The HDHP is the gateway — without it, you cannot open an HSA, and if you drop the HDHP, you must stop contributing to the HSA (though you can keep the money already in it).

If your employer offers health insurance, check whether they offer an HDHP option during open enrollment. If you buy your own insurance, search your state's health insurance marketplace (Healthcare.gov or your state's equivalent) and filter for plans labeled as high-deductible. If you are on Medicare, some Medicare Advantage plans are HSA-may be able to access, though Original Medicare is not.

The IRS sets the minimum deductible each year — for 2024, it is $1,600 for individual coverage and $3,200 for family coverage, though many plans have higher deductibles. Your plan documents will state clearly whether it qualifies as an HDHP.

Key Takeaways

  • You must be enrolled in a high-deductible health plan before you can open an HSA; the plan itself is the requirement, not optional.
  • Once you have an HDHP, you can open an HSA through a bank, credit union, or investment firm — your health insurance company does not have to be involved.
  • You contribute money to the HSA yourself (your employer may also contribute), and you control how it is invested and spent on medical costs.
  • The money rolls over year to year and never expires, so an HSA is a long-term savings tool, not a use-it-or-lose-it account.

Where to open an HSA

Once you have confirmed your HDHP coverage, you choose where to open the account. Your health insurance company may offer one, but you are not required to use theirs. Banks, credit unions, and investment firms all offer HSAs. Compare a few to understand the fees and investment options available.

Some accounts charge a monthly maintenance fee (typically $2 to $5), while others waive fees if you maintain a minimum balance. Some offer only a savings account (your money sits in cash), while others let you invest in mutual funds or stocks once your balance reaches a certain level. If you plan to use the HSA mainly for near-term medical costs, a savings account is simpler. If you are younger and expect to carry a balance for years, investment options may help your money grow.

To open an account, you will need your Social Security number, proof of your HDHP coverage (your insurance card or a letter from your employer), and a government-issued ID. Most providers let you open online in 10 to 15 minutes.

Contributing money to your HSA

You can contribute up to a set amount each year, which the IRS adjusts annually. For 2024, the limit is $4,150 for individual coverage and $8,300 for family coverage. If you are 55 or older, you can add an extra $1,000 per year (called a catch-up contribution).

Your employer may contribute to your HSA as part of your benefits package — this counts toward your annual limit but does not come out of your paycheck. If you contribute through payroll deduction (which many employers allow), that money is taken out before taxes are calculated, lowering your taxable income for the year.

If you open an HSA mid-year, you can still contribute the full annual amount for that year, as long as you remain enrolled in an HDHP through December 31. However, if you drop your HDHP coverage before the end of the year, you can only contribute up to the month you left the plan.

Using your HSA to pay for medical costs

Once money is in your HSA, you can withdraw it to pay for may have access to medical expenses — costs that the IRS allows. These include deductibles, copays, coinsurance, prescription drugs, dental work, vision care, mental health treatment, and many other health-related costs. You can also use HSA money to pay for health insurance premiums in specific situations: COBRA coverage, Medicare premiums (once you turn 65), and long-term care insurance.

Keep receipts for any medical expense you pay with HSA money. You do not have to submit them when you withdraw the money, but the IRS can ask for proof later if you are audited. If you withdraw money for a non-medical expense before age 65, you pay income tax on that amount plus a 20 percent penalty. After age 65, you can withdraw money for any reason without penalty, though non-medical withdrawals are taxed as income.

Most HSA providers give you a debit card linked to the account, so you can pay directly at the pharmacy or doctor's office. You can also withdraw cash or transfer money to your checking account.

What happens to unused money

Unlike a Flexible Spending Account (FSA), which requires you to spend the money within the year or lose it, an HSA has no expiration. Money you do not spend rolls over to the next year, and the year after that. This makes an HSA a genuine savings tool — you can build a balance over time and use it for medical costs years later, or even in retirement.

The money in your HSA is yours to keep, even if you change jobs or drop your HDHP coverage. You cannot make new contributions once you leave an HDHP, but the balance stays in the account and you can continue to withdraw it for may have access to medical expenses whenever you need to.

Employer contributions and payroll deduction

If your employer offers an HSA, they may contribute money on your behalf — this is separate from your own contributions and does not reduce your take-home pay. Some employers contribute a fixed amount (for example, $500 per year), while others match a percentage of what you contribute.

If your employer allows payroll deduction, you can authorize them to take a set amount from each paycheck and deposit it into your HSA. This money is deducted before income tax and Social Security tax are calculated, so you save on taxes. You set the amount yourself and can change it during open enrollment or if you have a may have access to life event (like a change in health coverage).

If you are self-employed or your employer does not offer an HSA, you can still open one and contribute on your own. You deduct your contributions on your tax return (Form 1040, Schedule 1) rather than through payroll.

Frequently Asked Questions

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

No. If you have an FSA through your employer, you cannot contribute to an HSA in the same year, with one exception: a limited-purpose FSA that covers only dental and vision costs is allowed alongside an HSA. Check with your employer's benefits office about what type of FSA they offer.

What if I change jobs or lose my HDHP coverage?

You can no longer contribute to the HSA once you are no longer enrolled in an HDHP, but the money already in the account stays there. You can continue to withdraw it for may have access to medical expenses at any time. If you enroll in a new HDHP later, you can resume contributions to the same HSA or open a new one.

Do I have to invest the money in my HSA?

No. You can keep the money in a savings account earning a small amount of interest, or you can choose to invest it in mutual funds or stocks if your provider offers that option. It is entirely your choice based on how long you plan to keep the money and your comfort with investment risk.

Can I use HSA money to pay for my spouse's medical costs?

Yes, as long as your spouse is claimed as a dependent on your tax return. You can also use it for any dependent's medical costs, including children and parents. The money does not have to be spent on the person whose name is on the account.

What if I withdraw money by mistake for something that is not a may have access to medical expense?

You can put the money back into the HSA within a certain timeframe (check your provider's rules), and it will not be treated as a non-may have access to withdrawal. If you do not return it, you will owe income tax plus a 20 percent penalty on that amount. Keep good records of what you spend HSA money on so you can correct mistakes quickly.