A health savings account is a tax-advantaged bank account you own, separate from insurance, that holds money specifically for medical expenses

An HSA is your own account—not your employer's, not your insurance company's. You put money in (sometimes your employer adds money too), and that money sits there until you spend it on medical costs. The account has three tax advantages: the money you put in reduces your taxable income, the money grows tax-free while it sits there, and you pay no tax when you withdraw it for medical expenses. No other savings account works this way.

To open an HSA, you must be enrolled in a high-deductible health plan (HDHP)—a specific type of health insurance with a higher deductible than a standard plan. You cannot have an HSA if you are on Medicare, covered by another person's health plan, or enrolled in a non-HDHP. The account itself is separate from your insurance; your insurance company does not run it. You choose a bank or financial institution to hold the account, just as you would choose a checking account.

The money in your HSA rolls over year to year. Unlike a flexible spending account (FSA), which forces you to spend the money or lose it, an HSA stays with you. If you change jobs, the account comes with you. If you retire, the money is still there. This makes an HSA a long-term savings tool, not just a way to pay this year's medical bills.

Key Takeaways

  • An HSA is your personal account that you control, and money in it rolls over from year to year without expiring.
  • You can only open an HSA if you are enrolled in a high-deductible health plan, and you cannot be on Medicare or covered by another health plan.
  • Money you contribute reduces your taxable income, grows tax-free, and comes out tax-free when spent on medical expenses.
  • You can use HSA money for doctor visits, prescriptions, dental work, vision care, and many other medical costs, but not for insurance premiums or over-the-counter items without a prescription.
  • After age 65, you can withdraw money for any reason without penalty, though non-medical withdrawals are taxed as income.

How much you can contribute each year

The IRS sets annual contribution limits, and they 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 the total amount going into your account from all sources—your contributions, your employer's contributions, and anyone else who contributes on your behalf.

You can contribute to your HSA through payroll deduction (if your employer offers it), by depositing money yourself, or both. Payroll deduction is often simpler because the money comes out before taxes are calculated, which lowers your taxable income automatically. If you contribute on your own, you claim the deduction on your tax return. Either way, the contribution limit is the same.

Contributions for a given year must be made by the tax filing important date (usually April 15 of the following year). If you open an HDHP mid-year, you can still contribute a full year's amount if you meet certain conditions, though this rule has specific requirements worth checking with a tax professional.

What medical expenses you can pay with HSA money

The IRS maintains a detailed list of what counts as a medical expense for HSA purposes. You can use the money for doctor visits, hospital stays, surgery, prescription medications, dental work, vision care (including glasses and contacts), hearing aids, mental health treatment, and physical therapy. You can also pay for medical equipment like crutches, wheelchairs, or blood pressure monitors. Copays and coinsurance on your health insurance count too.

Some items require a prescription to may have access to. Over-the-counter pain relievers, allergy medicine, and cold medicine do not count unless a doctor prescribes them. Vitamins and supplements generally do not count unless prescribed for a specific medical condition. Cosmetic procedures do not count, but reconstructive surgery after an injury or illness does.

You cannot use HSA money to pay your health insurance premiums, with three exceptions: COBRA continuation coverage, Medicare premiums (after age 65), and long-term care insurance premiums (up to a limit). You also cannot use it for life insurance, disability insurance, or long-term care insurance premiums that exceed the IRS limit.

How to withdraw money and keep records

You withdraw money from your HSA the same way you would from a regular bank account—by check, debit card, transfer, or ATM. Some HSA providers issue a debit card specifically for medical expenses. When you use the money for a medical expense, you do not need to submit receipts to the HSA provider, but you should keep them for your own records in case the IRS asks.

The IRS does not require you to submit proof of medical expenses when you withdraw money, but you are responsible for making sure the money goes only to medical costs. If you withdraw money for a non-medical reason, you owe income tax on that amount plus a 20% penalty (before age 65). After age 65, the penalty goes away, but you still owe income tax on non-medical withdrawals.

Keep receipts and documentation for at least three years. If you are ever audited, the IRS may ask to see proof that your withdrawals were for medical expenses. A receipt from a pharmacy, doctor's office, or hospital is usually sufficient. For larger expenses, keep the explanation of benefits from your insurance company as well.

How HSAs work with your health insurance

An HSA is designed to work alongside an HDHP, not to replace it. Your HDHP covers major medical events—hospitalizations, surgeries, serious illnesses—but you pay more out of pocket for routine care until you reach your deductible. An HSA lets you set aside money to cover those out-of-pocket costs before they happen. Once you meet your deductible, your insurance starts sharing costs with you through copays or coinsurance, and you can still use HSA money to pay those.

Your HSA and your HDHP are separate. Your insurance company does not control your HSA, and your HSA provider does not control your insurance. You can change insurance plans and keep the same HSA. You can even leave your job and keep the HSA. The only requirement is that you remain enrolled in an HDHP to continue contributing new money to the account.

Some employers offer an HSA as part of their benefits package and may contribute money on your behalf. This is information programs toward your medical expenses. Even if your employer does not contribute, you can open an HSA on your own as long as you are enrolled in an HDHP.

What happens to your HSA if you change jobs or retire

Your HSA stays with you when you leave a job. The account is yours, not your employer's. You can take it to a new employer, keep it with the same bank, or move it to a different HSA provider. There is no important date to move it, and you do not lose the money.

If your new job offers an HSA through a different provider, you can roll your old HSA into the new one, or keep both accounts open. Some people prefer to keep an old HSA separate and let it grow while they use a new one for current expenses. Both accounts remain yours and both can hold money indefinitely.

When you turn 65, you become ineligible to contribute new money to your HSA (because you become may be able to access for Medicare). However, the money already in the account stays there and you can continue to withdraw it for medical expenses tax-free. After 65, if you withdraw money for non-medical reasons, you pay income tax but not the 20% penalty. This makes an HSA a powerful retirement savings tool if you do not spend all the money while working.

HSA investment options and growth

Most HSA providers let you invest the money in mutual funds, stocks, or bonds, similar to a retirement account. This means your HSA balance can grow over time through investment returns, not just through contributions. Some providers require a minimum balance (often $1,000 to $2,500) before you can invest; below that, the money sits in a cash account earning little or no interest.

If you invest HSA money, you are responsible for the investment choices and the risk. The money grows tax-free, which is a major advantage. If you withdraw it for medical expenses, you do not owe tax on the gains. If you withdraw it for non-medical reasons before age 65, you owe tax on the gains plus the 20% penalty.

Not all HSA providers offer investment options. Some are basic savings accounts only. When you choose an HSA provider, ask whether they offer investments and what the fees are. Lower fees matter more in an HSA than in many accounts because the money may sit there for decades.

Frequently Asked Questions

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

Yes, if your spouse is on your health insurance plan (family coverage), you can use HSA money for their medical expenses. If your spouse has their own separate health insurance, you can still use your HSA for their expenses, but they cannot contribute to your HSA. Each person with their own HDHP can have their own HSA.

What happens to my HSA if I lose my job?

Your HSA is yours to keep. You do not lose the money or the account. However, you can no longer contribute new money to it unless you enroll in another HDHP within a certain timeframe. The money already in the account remains available for medical expenses indefinitely.

Can I withdraw money from my HSA to pay for my child's braces?

Yes. Orthodontic work, including braces, counts as a medical expense. You can use HSA money to pay for your child's dental and vision care, as well as other medical costs, regardless of whether they are on your health insurance plan.

Is there a important date to spend the money in my HSA?

No. Unlike a flexible spending account, HSA money does not expire. You can let it sit in the account for years and use it whenever you need it. This is one of the main advantages of an HSA over other medical savings accounts.

Can I use my HSA to pay for gym memberships or wellness programs?

Generally no, unless the gym membership or wellness program is prescribed by a doctor for a specific medical condition. A general gym membership for fitness does not count. However, some programs that treat a diagnosed condition (like cardiac rehabilitation) may count if prescribed.