A health savings account lets you set aside pre-tax money to pay for medical expenses now or later

A health savings account (HSA) is a bank account where you deposit money before taxes are taken out of your paycheck. You then use that money to pay for medical costs — doctor visits, prescriptions, dental work, glasses, and many other health expenses. The money you don't spend stays in the account and grows year to year, making it different from a flexible spending account (FSA), which you typically lose if you don't use by the end of the year.

The main advantage is tax savings. Money going into an HSA reduces your taxable income, so you pay less in federal income tax. When you withdraw money to pay for medical expenses, you pay no tax on that withdrawal either. If you use the account strategically — spending from it only when necessary and letting the rest grow — an HSA can become a long-term savings tool for retirement health costs.

Key Takeaways

  • You can only open an HSA if you have a high-deductible health plan (HDHP), which means your insurance deductible is higher than standard plans but your monthly premiums are usually lower.
  • Money you contribute reduces your taxable income, and withdrawals for medical expenses are not taxed, giving you a double tax advantage.
  • You control the money in your HSA — it belongs to you, not your employer — and you can take it with you if you change jobs.
  • After age 65, you can withdraw money for any reason without penalty, though non-medical withdrawals are taxed as regular income.
  • Your HSA provider (usually a bank or investment company) sends you a debit card or checkbook so you can pay for medical expenses directly from the account.

Who can open an HSA and what you need to may have access to

To open an HSA, you must be covered by a high-deductible health plan (HDHP). Your employer may offer one, or you can purchase one through the health insurance marketplace in your state. The IRS sets the minimum deductible each year — for 2024, that is $1,600 for individual coverage and $3,200 for family coverage, though these numbers change annually. Your plan cannot offer certain benefits (like preventive care without a deductible) that would disqualify it as an HDHP.

You also cannot be covered by any other health insurance at the same time, with limited exceptions for accident, disability, dental, vision, and long-term care coverage. If you are on Medicare or claimed as a dependent on someone else's tax return, you cannot open an HSA. Once you meet these requirements, you can open an account through your employer's plan (if they offer one) or through a bank, credit union, or investment company that administers HSAs.

How much you can contribute each year

The IRS sets contribution limits that change 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 add an extra $1,000 per year (called a catch-up contribution). These limits explore to all your HSA accounts combined — if you have accounts at two different banks, your total contributions across both cannot exceed the annual limit.

You can contribute money in several ways: through payroll deductions from your employer (the most common method), by making a direct deposit to your HSA bank account, or by writing a check to the account. Contributions made through payroll deductions avoid both income tax and Social Security tax, making that route the most tax-efficient. If you contribute after the tax year ends, you have until the tax filing important date (usually April 15) to contribute for the previous year.

What medical expenses you can pay for with HSA money

The IRS maintains a long list of may have access to medical expenses — costs that you can pay for with HSA money without owing taxes on the withdrawal. These include doctor visits, hospital stays, prescription medications, dental work, vision care, mental health treatment, and physical therapy. You can also use HSA money for medical equipment like crutches, wheelchairs, and blood pressure monitors, as well as for certain over-the-counter items like bandages and pain relievers (though rules on over-the-counter drugs changed in 2020).

Expenses that do not count include cosmetic procedures, gym memberships, general wellness products, and most over-the-counter vitamins. If you are unsure whether a specific expense qualifies, your HSA provider can tell you, or you can check IRS Publication 502, which lists may have access to medical expenses in detail. Keeping receipts is important — if you withdraw money and the IRS later questions whether it was for a may have access to expense, you will need proof.

How your HSA grows and what happens to unused money

Unlike an FSA, money in your HSA does not disappear at the end of the year. Any balance you do not spend rolls over to the next year, and the year after that, indefinitely. This means an HSA can function as a long-term savings account. Many HSA providers let you invest your balance in mutual funds or other investments, similar to a retirement account, so your money can grow beyond what you deposit.

The account is yours to keep even if you change jobs or retire. If you leave your employer, you take the HSA with you — your employer has no claim to the money. This makes an HSA more flexible than an FSA, which you typically lose when you leave a job. Some people use this feature strategically, spending only what they need for medical expenses each year and letting the rest accumulate for retirement, when health costs often rise.

Withdrawals, penalties, and what happens after age 65

When you need to pay for a medical expense, you can withdraw money from your HSA using a debit card, check, or bank transfer that your provider gives you. You should keep receipts showing the expense was medical and may have access to. The IRS does not require you to submit receipts when you withdraw, but if you are audited and cannot prove the money went to a may have access to expense, you will owe income tax plus a 20 percent penalty on that withdrawal.

After you turn 65, the rules change. You can withdraw money for any reason without the 20 percent penalty. However, if the withdrawal is not for a may have access to medical expense, you will owe income tax on it — the same as you would with a traditional retirement account. This makes an HSA a useful backup retirement savings tool: if you have other money to pay for medical expenses while you are working, you can let your HSA grow untouched, then use it for any purpose after 65, paying only income tax rather than income tax plus penalty.

How an HSA differs from an FSA and other savings accounts

A flexible spending account (FSA) is similar to an HSA in that you contribute pre-tax money for medical expenses, but it works differently in important ways. With an FSA, you typically lose any money you do not spend by the end of the year — there is no rollover. An FSA is also tied to your job, so you lose it when you leave. An HSA, by contrast, is yours to keep and grows year to year. However, not all employers offer an HSA, and you can only have one if you are on an HDHP.

A regular savings account or checking account offers no tax advantage — money going in is already taxed, and you pay tax on any interest earned. A dependent care FSA is a separate account for childcare expenses only and has its own rules and limits. If your employer offers both an HSA and an FSA, you generally cannot have both at the same time, though some employers offer an FSA for dependent care alongside an HSA for medical expenses.

Frequently Asked Questions

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

Yes, if you have family coverage on your HDHP, you can use your HSA to pay for medical expenses for your spouse and any dependents on your plan. You do not need to be married to use the account for a spouse's expenses — the account just needs to cover them under the health plan.

What happens to my HSA if I switch to a different health plan?

Your HSA stays with you. If you switch to a plan that is not an HDHP, you cannot make new contributions, but the money already in the account remains yours and you can still withdraw it for may have access to medical expenses. Once you are back on an HDHP, you can resume contributions.

Can I invest the money in my HSA?

Many HSA providers let you invest your balance in mutual funds, stocks, or bonds, similar to a brokerage account. Some require a minimum balance (often $1,000 or $2,000) before you can invest. Check with your specific provider to see what investment options are available and what fees they charge.

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

You can save it indefinitely — there is no requirement to spend the money. However, if you withdraw money for non-medical reasons before age 65, you will owe income tax plus a 20 percent penalty. After 65, you can withdraw for any reason, paying only income tax on non-medical withdrawals.

What if I do not have medical expenses in a given year?

The money stays in your account and rolls over to the next year. This is one of the main advantages of an HSA over an FSA. You can let your balance grow for years, using it strategically when you have large medical expenses or saving it for retirement health costs.