A health savings account is a bank account that lets you set aside money specifically for medical expenses, with tax advantages you don't get from a regular savings account.

An HSA is tied to a high-deductible health insurance plan — that's a plan where you pay more out of pocket before insurance kicks in, but your monthly premiums are lower. The account itself works like a checking or savings account at a bank. You put money in (usually through payroll deductions), and you can withdraw it to pay for doctor visits, prescriptions, dental work, vision care, and many other medical costs.

The tax advantage is the key difference. Money you put into an HSA is not taxed as income. Money you withdraw to pay for medical expenses is not taxed. And if you don't spend the money in a given year, it rolls over — you don't lose it. That's different from a Flexible Spending Account (FSA), where unspent money usually disappears at the end of the year.

Key Takeaways

  • An HSA is a savings account for medical expenses that comes with a tax break — the money you put in and the money you withdraw for medical care are not taxed.
  • You can only open an HSA if you have a high-deductible health insurance plan, which means lower monthly premiums but higher out-of-pocket costs before insurance covers care.
  • Money you don't spend in an HSA stays in the account and earns interest or investment returns, unlike FSAs where unspent money is forfeited.
  • You can use HSA money for a wide range of medical expenses: doctor visits, prescriptions, dental work, vision care, hearing aids, and some medical equipment.
  • After age 65, you can withdraw HSA money for any reason without penalty, though non-medical withdrawals are taxed as income.

Who can open an HSA and when

You must have a high-deductible health insurance plan to open an HSA. Your employer may offer one, or you can buy one on your own through the health insurance marketplace in your state. The IRS sets the minimum deductible each year — for 2024, a high-deductible plan for an individual must have a deductible of at least $1,600, and for a family it must be at least $3,200. These numbers change annually.

You cannot have other health coverage at the same time — no regular insurance plan, no spouse's plan, no Medicare. If you're on Medicare, you lose HSA may be able to access. If you have an FSA through your employer, you usually cannot also have an HSA, though some employers offer a limited FSA that allows both.

You open an HSA through a bank, credit union, or insurance company — not through your employer, though your employer may set one up for you or help you open one. You can shop around for different HSA providers, just as you would for a regular savings account.

How much you can put in each year

The IRS sets annual contribution limits. For 2024, you can contribute up to $4,150 if you have individual coverage, or $8,300 if you have family coverage. These limits change each year. If you're 55 or older, you can contribute an extra $1,000 per year — this is called a catch-up contribution.

Most people contribute through payroll deductions, which means your employer takes the money out of your paycheck before taxes are calculated. This reduces your taxable income for the year. You can also contribute on your own by depositing money directly into your HSA, though you'll need to report it when you file taxes to get the tax break.

You don't have to contribute the maximum. You can put in whatever amount makes sense for your situation. If you don't use all the money in a year, the unused balance stays in your account and is available next year.

What you can spend HSA money on

HSA money can pay for most medical expenses: doctor visits and hospital stays, prescription medications, dental work, vision care and glasses, hearing aids, mental health counseling, physical therapy, and many medical devices and supplies. The IRS publishes a long list of covered expenses.

Some things are not covered: cosmetic surgery (unless it's reconstructive after an injury), over-the-counter medications (with a few exceptions like insulin), gym memberships, and vitamins or supplements. If you're unsure whether something counts, your HSA provider can tell you, or you can check the IRS website.

You can use your HSA debit card to pay at the doctor's office or pharmacy, or you can pay out of pocket and then withdraw money from your HSA later. Keep receipts — if you're ever audited, the IRS may ask you to prove that withdrawals were for medical expenses.

How HSA money grows over time

Unlike a regular savings account where money just sits there, many HSAs let you invest the balance in mutual funds or other investments. This means your money can earn returns over time. Some HSAs offer only a savings account option with a small interest rate; others let you choose between savings and investments.

If you invest HSA money and the investment loses value, you lose money — just as you would with any investment. But if you're young and don't expect to need the money soon, investing can help it grow faster than it would in a savings account.

The tax advantage applies whether your money is in savings or investments. Any interest or investment gains are not taxed, as long as you eventually spend the money on medical expenses.

What happens to your HSA if you change jobs or retire

Your HSA belongs to you, not your employer. If you leave your job, the account stays open and the money is still yours. You can keep using it to pay for medical expenses, or you can leave it untouched and let it grow. Some people use their HSA as a long-term retirement savings tool for this reason.

If your new job offers an HSA, you can open a new one there, or you can keep your old account and contribute to both (as long as your total contributions don't exceed the annual limit). You can also transfer money from one HSA to another without penalty.

After age 65, you can withdraw HSA money for any reason. If you use it for medical expenses, there's no tax. If you use it for something else — groceries, rent, travel — you pay income tax on the withdrawal, but no penalty. This makes an HSA a flexible retirement savings tool.

HSA vs. FSA: what's the difference

Both accounts let you set aside pre-tax money for medical expenses, but they work differently. An FSA is usually offered only through your employer, and any money you don't spend by the end of the year is forfeited — you lose it. An HSA is portable (it goes with you if you change jobs), and unused money rolls over indefinitely.

An FSA has a lower annual limit — usually $3,200 for individual coverage. An HSA has a higher limit and lets you invest the money. But you can only have an HSA if you have a high-deductible health plan, whereas an FSA can work with any health plan.

Some employers offer both: a limited FSA (with a lower limit) alongside an HSA. If your employer offers this option, you can use both accounts in the same year.

Frequently Asked Questions

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

Yes. HSA money can be used for medical expenses of you, your spouse, and any dependents you claim on your taxes — even if they're not on your health insurance plan. You don't have to be the one receiving the care to use the money.

What happens if I withdraw money from my HSA for something that's not a medical expense?

Before age 65, you pay income tax on the withdrawal plus a 20% penalty. After age 65, you pay income tax but no penalty. Keep receipts for all medical expenses so you can prove withdrawals were legitimate if asked.

Can I have an HSA if I'm self-employed?

Yes, as long as you have a high-deductible health insurance plan. You can open an HSA through a bank or insurance company. You contribute on your own (not through payroll) and report the contribution when you file taxes.

Do I have to spend my HSA money by a certain date?

No. Unlike an FSA, there's no important date. Money stays in your account year after year. You can spend it whenever you need it, even decades later. This makes it useful as a long-term savings tool.

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

Generally no — HSA money cannot pay for your regular health insurance premiums. The exception is COBRA coverage (temporary insurance if you lose your job) and long-term care insurance, which can be paid from an HSA.