The basic idea: a tax-advantaged account paired with a high-deductible health plan

A Health Savings Account (HSA) is a savings account designed specifically for medical expenses. You contribute money to it before taxes are taken out of your paycheck, which lowers your taxable income. The money sits in the account earning interest, and when you use it to pay for may have access to medical costs, you withdraw it tax-free. The catch is that you can only open an HSA if you're enrolled in a high-deductible health plan (HDHP) — a type of health insurance with lower monthly premiums but higher out-of-pocket costs before insurance kicks in.

Think of it as a partnership: the HDHP covers catastrophic medical events, while the HSA helps you pay the costs before you hit that deductible. Unlike a Flexible Spending Account (FSA), which is "use it or lose it," money in an HSA rolls over year to year. You own the account and can take it with you if you change jobs.

Key Takeaways

  • You can only open an HSA if you have a high-deductible health plan, and you must not be covered by other health insurance or enrolled in Medicare.
  • Money you contribute reduces your taxable income, grows tax-free in the account, and comes out tax-free when spent on may have access to medical expenses.
  • may have access to expenses include deductibles, copays, prescriptions, dental work, vision care, and many other medical costs — but not health insurance premiums or cosmetic procedures.
  • Unused money stays in your account indefinitely and can be invested in mutual funds or kept in a cash balance, depending on your provider.
  • After age 65, you can withdraw money for any reason without penalty, though non-medical withdrawals are taxed as income.

Who can open an HSA and when

You're may be able to access to open an HSA only if three conditions are met: you're enrolled in an HDHP, you have no other health insurance coverage (with limited exceptions), and you're not enrolled in Medicare. The HDHP deductible amounts change each year — your employer or insurance company will tell you whether your plan qualifies.

You can open an HSA through your employer if they offer one, or independently through a bank, credit union, or investment company. If you open one on your own, you'll need to verify your HDHP enrollment when you set up the account. The account is yours alone — your employer doesn't own it, even if they help you set it up.

How contributions work and what you can contribute

You contribute money to your HSA either through payroll deductions (if your employer offers it) or by depositing money directly. Payroll deductions are simpler because the money comes out before taxes are calculated, automatically lowering your taxable income. If you contribute on your own, you can deduct the contribution on your tax return.

The IRS sets annual contribution limits, which vary depending on whether your HDHP covers just you or your family. These limits change yearly. For 2024, the limit is $4,150 for individual coverage and $8,300 for family coverage, but check with your provider or the IRS website for the current year. You can contribute up to the limit, and any unused money rolls over to the next year — there's no important date to spend it.

If you turn 55, you can contribute an extra $1,000 per year (called a "catch-up contribution") until you enroll in Medicare. This is one of the few places the tax code gives you extra room to save as you approach retirement.

What counts as a may have access to medical expense

may have access to expenses are medical, dental, and vision costs that would normally be deductible on your taxes. This includes deductibles, copays, coinsurance, prescription medications, dental fillings and cleanings, glasses and contact lenses, hearing aids, and mental health counseling. It also covers some less obvious things: over-the-counter pain relievers and allergy medications (with a prescription or doctor's note), medical equipment like crutches or blood pressure monitors, and therapy sessions.

What doesn't count: health insurance premiums (with three exceptions: COBRA continuation coverage, long-term care insurance, and health insurance while you're receiving unemployment benefits), cosmetic procedures, gym memberships, and vitamins or supplements unless prescribed by a doctor for a specific condition. If you're unsure whether something qualifies, ask your HSA provider or check IRS Publication 502.

You don't have to spend the money in the year you contribute it. You can let it accumulate for years and then withdraw it for past or future medical expenses. Keep receipts and records of what you spent on, because the IRS can ask you to prove that withdrawals were for may have access to expenses.

How the money grows and where it's held

Your HSA provider holds the money in an account, similar to a savings account or investment account. Some providers keep your balance in a cash account earning a small interest rate. Others let you invest the money in mutual funds, stocks, or bonds — which means it can grow faster but also carries investment risk.

If you have a large balance and don't plan to spend it soon, investing can make sense. If you need the money within a few years for medical costs, keeping it in cash is safer. Many people use a hybrid approach: keep enough cash to cover expected medical expenses, and invest the rest.

You can move your HSA to a different provider if you find better investment options or lower fees. This is called a "trustee-to-trustee transfer" and doesn't count as a withdrawal, so there are no tax consequences. Your old provider will send the money directly to your new provider.

Withdrawals and how to use the money

To withdraw money, you typically request it through your HSA provider's website or app, write a check from your HSA account, or use an HSA debit card if your provider offers one. The debit card is the fastest method — you swipe it at the pharmacy or doctor's office and the money comes out when ready. Some providers also reimburse you if you pay out of pocket and then submit a receipt.

Keep track of what you spend and why. The IRS doesn't require you to submit receipts when you withdraw, but you need to keep them for your records. If you withdraw money for something that isn't a may have access to expense, you'll owe income tax on that amount plus a 20% penalty — unless you're over 65, in which case you owe the income tax but not the penalty.

You can withdraw money for a may have access to expense at any time, even years after you paid for it. For example, if you paid $500 out of pocket for dental work in 2023 and didn't reimburse yourself then, you can withdraw $500 from your HSA in 2025 to cover it retroactively. This flexibility makes HSAs useful as long-term savings vehicles.

HSAs after age 65 and in retirement

Once you turn 65 and enroll in Medicare, you can no longer contribute to an HSA. However, you can still withdraw money from your existing balance for may have access to medical expenses. After 65, you can also withdraw money for any reason without the 20% penalty — you'll just owe income tax on non-medical withdrawals, the same as you would with a traditional retirement account.

This makes an HSA a powerful retirement savings tool. If you've accumulated a large balance and don't spend it all on medical costs, you can use it to supplement your retirement income. Medical expenses tend to increase with age, so many people find they use their HSA balance gradually throughout retirement.

Frequently Asked Questions

Can I use my HSA to pay for my health insurance premiums?

Not usually. You can't use HSA money to pay regular health insurance premiums. However, there are three exceptions: you can use it for COBRA continuation coverage (temporary insurance when you leave a job), long-term care insurance premiums, and health insurance premiums while you're receiving unemployment benefits. Check with your provider if you're unsure about your specific situation.

What happens to my HSA if I change jobs?

Your HSA stays with you. The account is yours, not your employer's, so you keep the money and the account even if you leave the job. You can continue contributing if your new employer offers an HDHP, or you can keep the account open and contribute on your own. If your new job doesn't have an HDHP, you can't contribute anymore, but you can still withdraw money for may have access to expenses.

Can I use my HSA for my spouse's or children's medical expenses?

Yes, if they're covered under your HDHP. You can withdraw money to pay for may have access to medical expenses for your spouse and dependents, even if they're not on the account. If your family members have their own HSAs, they can use their own accounts instead. Keep receipts showing whose expense it was.

What's the difference between an HSA and an FSA?

An FSA (Flexible Spending Account) is also a tax-advantaged account for medical expenses, but it's "use it or lose it" — money left over at the end of the year is forfeited. An HSA lets you keep unused money indefinitely. FSAs also don't require a high-deductible health plan. HSAs are generally better if you think you'll have leftover money, because you can save it for future years or retirement.

Do I have to use my HSA for medical expenses, or can I just save it?

You can save it indefinitely without spending it. There's no requirement to use the money by a certain date. Many people treat their HSA as a retirement savings account and let the balance grow over decades. Just remember that if you withdraw money for non-medical reasons before age 65, you'll owe income tax plus a 20% penalty on that amount.