You need a high-deductible health plan first

A Health Savings Account (HSA) is not something you open on its own. You can only open one if you are already enrolled in a high-deductible health plan (HDHP) — a type of health insurance where you pay a lower monthly premium but a higher amount out of your own pocket before insurance kicks in.

The IRS sets the minimum deductible each year. For 2024, an HDHP for an individual must have a deductible of at least $1,600, and for a family it must be at least $3,200. Your employer may offer an HDHP as one of their health plan choices, or you can buy one yourself through the health insurance marketplace in your state.

If you have traditional health insurance with a low deductible, or if you are on Medicare or Medicaid, you cannot open an HSA. The same applies if someone else claims you as a dependent on their taxes. Check your current plan documents or call your insurance company to confirm whether you have an HDHP.

Key Takeaways

  • You must be enrolled in a high-deductible health plan before you can open an HSA, and you cannot have other health coverage at the same time.
  • You can open an HSA through your employer's benefits system, through a bank or financial institution, or through a brokerage firm — the process takes minutes to hours depending on where you go.
  • You will need your Social Security number, proof of your HDHP coverage, and a small initial deposit, which varies by provider but is often $0 to $25.
  • Once your account is open, you can contribute money throughout the year up to the IRS limit, which changes annually and depends on whether you have individual or family coverage.
  • Money in an HSA rolls over year to year and earns interest or investment returns, so it builds over time unlike a flexible spending account.

Where to open an HSA

You have three main routes: through your employer, through a bank or credit union, or through a brokerage or investment firm. If your employer offers health benefits, they usually offer an HSA as part of the enrollment process — this is the fastest route because your employer may match contributions or handle the paperwork for you.

If you buy your own health insurance through the marketplace or have a self-employed HDHP, you will open an HSA directly with a financial institution. Large banks like Chase, Wells Fargo, and Bank of America offer HSAs. Credit unions often do as well. Brokerage firms like Fidelity, Vanguard, and Charles Schwab offer HSAs with investment options, which means your money can grow in stocks or mutual funds rather than sitting in a savings account.

The choice between a bank HSA and an investment HSA depends on how much you plan to contribute and how long you plan to keep the money there. A bank HSA is simpler and safer if you expect to spend the money within a few years. An investment HSA makes sense if you are contributing regularly and plan to let the money grow for retirement.

What you need to open an account

Have these items ready before you start: your Social Security number, proof that you are enrolled in an HDHP, and a way to make an initial deposit. Proof of coverage can be a screenshot of your insurance card, a letter from your employer's benefits department, or a copy of your insurance plan documents showing the deductible amount.

The initial deposit varies by provider. Some banks require $0 to open; others ask for $25 to $100. You can deposit by bank transfer, debit card, or check. If you are opening through your employer, the deposit often comes from your paycheck automatically.

The entire process usually takes 15 minutes to an hour online, or longer if you are doing it in person at a bank branch. You will create a username and password, confirm your identity, and choose how you want to fund the account going forward.

How to contribute money throughout the year

Once your account is open, you can add money in several ways. If your employer offers an HSA, you can have money deducted from your paycheck before taxes — this is called a pre-tax payroll deduction and saves you money on income taxes. You set the amount during your employer's benefits enrollment period, usually once a year in the fall.

If you opened an HSA on your own, you can transfer money from your bank account whenever you want. You can also receive a debit card linked to your HSA and use it to pay for medical expenses directly. Some people make one large contribution at the start of the year; others contribute small amounts throughout the year.

The IRS sets a maximum contribution limit 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. You do not have to contribute the full amount — you can contribute whatever fits your budget.

Understanding contribution important date and tax forms

You can contribute to your HSA at any time during the year, and you have until the tax filing important date the following year (usually April 15) to make contributions for the previous year. For example, you can contribute to your 2024 HSA until April 15, 2025.

If you contribute through payroll, your employer handles the tax paperwork automatically. If you contribute on your own, you will receive a Form 5498-SA from your HSA provider by May 31 each year, showing how much you contributed. You do not file this form with your taxes, but you keep it for your records.

When you use HSA money to pay for medical expenses, you do not report those transactions to the IRS unless you withdraw more than you spent. Keep receipts for any medical expenses you pay with HSA funds, in case the IRS asks questions later.

What happens if you change jobs or health plans

Your HSA stays with you even if you leave your job. Unlike a flexible spending account, which you lose when you leave, an HSA is yours to keep. You can roll the balance to a new HSA at a different bank or financial institution, or you can leave it where it is and keep contributing if you still have an HDHP.

If you switch from an HDHP to a different type of health insurance, you can no longer contribute new money to your HSA, but the money already in the account stays there. You can still withdraw it for medical expenses tax-free. If you withdraw it for non-medical reasons, you will owe income tax plus a 20% penalty — unless you are 65 or older, in which case you only owe income tax.

If you move to a new employer that offers an HSA, you can roll your old HSA balance into the new one, or keep both accounts open. Many people keep their old HSA and open a new one at the new employer, because it gives them more flexibility and more investment options.

Common mistakes to avoid when opening an HSA

The biggest mistake is opening an HSA before confirming you have an HDHP. If you do not have the right health plan, the IRS will penalize you. Before you open an account, call your insurance company or check your plan documents to confirm your deductible meets the IRS minimum.

Another common mistake is treating an HSA like a regular savings account and forgetting about it. The money is meant to grow over time, especially if you are healthy and do not have large medical expenses. Many people contribute regularly but rarely withdraw, letting the balance build for retirement.

A third mistake is losing track of receipts. You do not have to submit receipts when you withdraw money, but if the IRS audits you, you will need to show that the money was spent on medical expenses. Keep receipts in a folder or take photos and store them digitally.

Frequently Asked Questions

Can I open an HSA if my employer does not offer one?

Yes. You can open an HSA directly with a bank, credit union, or brokerage firm as long as you have an HDHP. You will need proof of your coverage and a way to fund the account. Many people who buy their own health insurance through the marketplace do this.

What if I do not have enough money to contribute the full IRS limit?

You do not have to contribute the full amount. Contribute whatever you can afford. Even small regular contributions add up over time, especially if your HSA earns interest or investment returns. You can always increase contributions later.

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

You can use HSA money to pay for COBRA coverage (health insurance when you leave a job), Medicare premiums, or long-term care insurance premiums. You cannot use it for regular health insurance premiums while you are working, with limited exceptions.

What counts as a medical expense I can pay with HSA money?

Medical expenses include doctor visits, prescriptions, dental work, vision care, mental health treatment, and medical equipment like wheelchairs or hearing aids. They do not include cosmetic procedures, gym memberships, or over-the-counter vitamins unless prescribed by a doctor. The IRS publishes a full list on their website.

Do I lose my HSA money if I do not use it by the end of the year?

No. Unlike a flexible spending account, HSA money rolls over year to year. You can let it sit and grow for years, or even decades. This makes an HSA a powerful retirement savings tool if you stay healthy and do not need to withdraw the money.