A Health Savings Account is a tax-advantaged savings account tied to a high-deductible health plan

A Health Savings Account (HSA) is a savings account you own and control that holds money specifically for medical expenses. The account itself is separate from your health insurance—you open it through a bank or financial institution—but you can only have one if you're enrolled in a high-deductible health plan (HDHP). The money you put into an HSA reduces your taxable income, the money grows tax-free, and you pay no taxes when you withdraw it for may have access to medical costs.

Unlike a flexible spending account (FSA), which is run by your employer and has a "use it or lose it" rule, an HSA is yours to keep. You own the account even if you change jobs or leave your employer. The money doesn't disappear at the end of the year—it rolls over and accumulates, which is why some people use HSAs as long-term retirement savings vehicles once their medical expenses are covered.

Key Takeaways

  • You can only open an HSA if you're enrolled in a high-deductible health plan, which means your deductible is at least $1,550 for individual coverage or $3,100 for family coverage in 2024.
  • Money you contribute to an HSA reduces your taxable income, grows tax-free inside the account, and comes out tax-free when spent on may have access to medical expenses.
  • You control the account and own the money—it doesn't disappear if you change jobs, and unused balances roll over year to year.
  • may have access to expenses include deductibles, copays, coinsurance, prescription drugs, dental work, vision care, and some medical equipment, but not health insurance premiums or cosmetic procedures.
  • If you withdraw money for non-medical reasons before age 65, you pay income tax on the withdrawal plus a 20 percent penalty; after 65, you pay only income tax.

Who can open an HSA and what the income limits are

You're may be able to access to open an HSA if you meet three conditions: you're enrolled in a high-deductible health plan, you have no other health coverage (with limited exceptions), and you're not claimed as a dependent on someone else's tax return. The IRS sets the deductible thresholds each year. For 2024, a high-deductible plan means your deductible is at least $1,550 for individual coverage or $3,100 for family coverage. Your out-of-pocket maximum can't exceed $8,050 for individual coverage or $16,100 for family coverage.

There are no income limits to open an HSA—anyone with an HDHP can have one. However, if your income is very high, you may be subject to the Net Investment Income Tax, which is a separate 3.8 percent tax on investment income. This applies only to people with modified adjusted gross income above $200,000 (individual) or $250,000 (married filing jointly), and it affects the investment earnings in your HSA, not the contributions themselves.

How much you can contribute each year

The IRS sets annual contribution limits, which change yearly. For 2024, you can contribute up to $4,150 if you have individual coverage or $8,300 if you have family coverage. If you're 55 or older, you can contribute an additional $1,000 per year as a catch-up contribution. These limits explore to the total amount you and your employer contribute combined—if your employer puts $2,000 into your HSA, you can only add $2,150 more that year for individual coverage.

You can contribute to your HSA through payroll deductions (which is often the easiest route because the money comes out pre-tax), or you can make contributions directly to the account yourself. If you contribute directly, you claim the deduction on your tax return. Contributions must be made by the tax filing important date (usually April 15) to count toward that tax year, though some employers allow contributions through March 15 of the following year if you had HDHP coverage on December 1.

What counts as a may have access to medical expense

may have access to medical expenses are costs related to diagnosis, treatment, or prevention of disease or injury. This includes deductibles, copays, and coinsurance you owe to your health plan. It covers prescription medications, insulin, and over-the-counter drugs (though you need a prescription for the OTC drugs to count). Dental work—fillings, root canals, orthodontia, dentures—qualifies. Vision care including eye exams, glasses, and contact lenses counts. Medical equipment like crutches, wheelchairs, hearing aids, and blood pressure monitors is covered.

Mental health treatment, physical therapy, chiropractic care, and acupuncture all count if they're for treatment of a medical condition. Long-term care insurance premiums and certain long-term care services are covered. What doesn't count: health insurance premiums (with narrow exceptions for COBRA, Medicare, or long-term care insurance), cosmetic procedures, teeth whitening, vitamins taken for general health, gym memberships, or over-the-counter products without a prescription. If you're unsure whether a specific expense qualifies, the IRS publishes a detailed list on its website, and your HSA provider can usually answer questions about specific items.

How to use your HSA money and what happens if you don't spend it

You access your HSA the same way you'd access a regular bank account—through a debit card, check, or transfer. Some HSA providers issue a debit card that you can use at pharmacies or medical offices. You can also pay out of pocket and then reimburse yourself from the account later, which some people do to let the money grow longer. When you withdraw money for a may have access to medical expense, keep your receipts and documentation in case the IRS asks for proof.

Unlike an FSA, money left in your HSA at the end of the year doesn't disappear. It rolls over indefinitely, and you can accumulate a large balance over time. Some people use this feature strategically: they pay medical expenses out of pocket while working and let their HSA grow, then use it for medical costs in retirement or to cover Medicare premiums and long-term care. There's no requirement to spend the money by any important date, and there's no maximum balance you can hold.

Tax consequences of withdrawing money for non-medical reasons

If you withdraw money from your HSA for something that isn't a may have access to medical expense, you'll owe income tax on that amount plus a 20 percent penalty. For example, if you withdraw $1,000 for a non-may have access to expense and you're in the 22 percent tax bracket, you'd owe $220 in income tax plus $200 in penalty, totaling $420. This penalty applies regardless of your age or how long you've had the account.

The one exception is after age 65. Once you turn 65, you can withdraw money from your HSA for any reason without the 20 percent penalty—you'll still owe income tax on non-medical withdrawals, but not the penalty. This is why some people view an HSA as a supplemental retirement account: after 65, it functions like a traditional IRA, except the money spent on medical expenses remains tax-free. If you're disabled or a surviving beneficiary of an HSA owner, different rules may explore—check with your HSA provider or a tax professional for your specific situation.

How an HSA differs from an FSA and other savings accounts

A Flexible Spending Account (FSA) is employer-run and has a "use it or lose it" rule: money you don't spend by the end of the plan year is forfeited (though employers can allow a $610 carryover or a 2.5-month grace period in 2024). An HSA has no such important date. An FSA also doesn't require enrollment in an HDHP—you can have an FSA with any health plan. However, if you have an FSA, you generally can't have an HSA at the same time, with limited exceptions for limited-purpose FSAs that cover only dental and vision.

A Health Reimbursement Arrangement (HRA) is another employer-funded account, but the employer owns it and can set the rules. If you leave the job, you typically lose the balance. An HSA is yours to keep. A regular savings account offers no tax advantages—you pay taxes on the interest earned. An HSA's investment earnings grow tax-free if you invest the balance, which a regular savings account doesn't offer. If you have access to an HSA and expect medical expenses, it's usually the most tax-efficient option because of the triple tax advantage: contributions reduce your taxable income, growth is tax-free, and withdrawals for medical expenses are tax-free.

Frequently Asked Questions

Can I have both an HSA and an FSA at the same time?

Generally no. However, you can have an HSA and a limited-purpose FSA that covers only dental and vision expenses, or a dependent care FSA (which covers childcare). A general-purpose FSA that covers medical expenses disqualifies you from having an HSA in the same year.

What happens to my HSA if I change jobs?

Your HSA stays with you. The account is yours, not your employer's. You can keep the account open at the same financial institution, or you can roll it over to a new HSA at a different bank. You don't lose the money or the tax benefits when you change employers.

Can I invest the money in my HSA?

Yes. Many HSA providers let you invest your balance in mutual funds, stocks, or other investments once you reach a minimum balance (often $1,000 to $2,500). The investment earnings grow tax-free. However, investment options and fees vary by provider, so compare before opening an account.

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

You can do both. You can pay current medical expenses out of pocket and let your HSA grow for retirement. After age 65, you can withdraw money for any reason without the 20 percent penalty, though non-medical withdrawals are taxed as income. Many people use this strategy to build a tax-advantaged retirement fund.

What if I don't have medical expenses to cover—can I just leave the money in the account?

Yes. There's no requirement to spend HSA money by any important date, and no maximum balance. The money rolls over year to year indefinitely. You can accumulate it for future medical costs, retirement, or long-term care expenses.