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

An HSA (Health Savings Account) is a bank account you own 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 in reduces your taxable income, grows tax-free if invested, and comes out tax-free when you spend it on medical costs. You keep the account even if you change jobs or health plans.

The main trade-off is that your health insurance has a higher deductible than a standard plan—meaning you pay more out of pocket before insurance kicks in. The HSA exists to help you save for those costs. 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 yearly.

Key Takeaways

  • An HSA requires enrollment in a high-deductible health plan and lets you set aside pre-tax money for medical expenses.
  • Money in an HSA grows tax-free and can be withdrawn tax-free for may have access to medical costs like deductibles, copays, prescriptions, and dental work.
  • You can invest HSA funds like a retirement account, and unused money rolls over year to year—there is no "use it or lose it" important date.
  • After age 65, you can withdraw HSA money for any reason without penalty, though non-medical withdrawals are taxed as income.

What you can and cannot pay for with HSA money

You can use HSA funds to pay for your health plan's deductible, copays, and coinsurance. You can also pay for prescription medications, dental work (cleanings, fillings, root canals, orthodontics), vision care (glasses, contacts, exams), hearing aids, and mental health treatment. Physical therapy, chiropractic care, and lab tests all count. The IRS maintains a detailed list, but the basic rule is: if it's a medical service or product your doctor would recognize as treatment or prevention, it likely qualifies.

You cannot use HSA money for health insurance premiums (with three exceptions: COBRA continuation coverage, Medicare premiums once you turn 65, and long-term care insurance). You also cannot pay for cosmetic procedures, gym memberships, vitamins without a medical condition, or over-the-counter medications unless they're prescribed by a doctor. If you withdraw money for a non-may have access to expense before age 65, you owe income tax on that amount plus a 20% penalty.

How much you can contribute and when contributions stop

Your employer may contribute to your HSA, you may contribute yourself, or both. If your employer offers an HSA, they typically set up payroll deductions so your contributions come out pre-tax. You can also make contributions on your own through the bank or financial institution holding your account. The annual contribution limit is set by the IRS and changes each year—for 2024 it's $4,150 for individual coverage and $8,300 for family coverage. If you're 55 or older, you can contribute an extra $1,000 per year (called a catch-up contribution).

You can only contribute during the months you're enrolled in an HDHP. If you switch to a standard health plan mid-year, you can only contribute for the months you had the high-deductible plan. If you lose HSA may be able to access—because you enrolled in Medicare, got covered under someone else's non-HDHP plan, or switched to a standard plan—you stop contributing when ready, but the money already in the account stays there and can be used for medical expenses indefinitely.

How HSA money grows and how long you can keep it

Unlike a flexible spending account (FSA), which requires you to spend the money within the plan year or lose it, an HSA has no important date. Money you don't spend rolls over to the next year automatically. Many HSAs let you invest the balance in mutual funds or other investments, similar to a retirement account. If your investments gain value, those gains are tax-free as long as you eventually spend the money on medical costs.

You can keep an HSA for life. If you retire, change jobs, or move to a different state, the account moves with you. You don't have to spend the money by any age. After you turn 65, the rules relax: you can withdraw money for any reason without the 20% penalty, though non-medical withdrawals are taxed as regular income. Many people treat an HSA as a retirement savings tool, letting the balance grow and only withdrawing for medical expenses in later years.

How to open an HSA and what documents you need

You open an HSA through a bank, credit union, or financial services company—not through your employer or insurance company, though your employer may recommend a provider. You'll need proof that you're enrolled in an HDHP. Your health insurance company provides a document called a "Notice of Coverage" or "Summary of Benefits and Coverage" that confirms your plan is HSA-may be able to access. Some employers provide this automatically; if not, you can request it from your insurance company's website or customer service.

When you open the account, you'll provide your Social Security number, address, and employment information. If your employer offers payroll deductions, you'll authorize those through your employer's benefits system. If you're contributing on your own, you can set up monthly transfers from your bank account or make a lump-sum deposit. The account is yours—if you leave your job, the HSA stays with you and you continue to own and control it.

HSA versus FSA: the main differences

Both HSAs and FSAs let you set aside pre-tax money for medical expenses, but they work differently. An FSA is tied to your employer and ends when you leave the job. FSA money must be spent within the plan year (usually January through December) or you lose it—though some plans offer a grace period of up to 2.5 months into the next year. An HSA is portable, has no important date, and rolls over year to year.

An HSA requires a high-deductible health plan; an FSA does not. An HSA can be invested; an FSA typically cannot. An HSA has higher annual contribution limits. The trade-off is that an HSA requires you to accept a higher deductible on your health insurance, while an FSA works with any plan. Some people have both—an HSA with their HDHP and a limited FSA (capped at $3,200 per year) through their employer for additional pre-tax medical savings.

What happens to your HSA if you change jobs or retire

Your HSA is yours alone—it doesn't belong to your employer. If you leave your job, the account stays open and the money stays in it. You can continue to use it for medical expenses and can keep investing it. You cannot make new contributions unless you enroll in another HDHP through a new employer or through the individual market. If you retire before age 65 and lose your HDHP coverage, you stop contributing but can still withdraw for medical expenses. Once you turn 65 and enroll in Medicare, you become ineligible to contribute to an HSA, but you can withdraw the balance for any reason (with taxes on non-medical withdrawals).

If you have a spouse with an HSA, you each have separate accounts—you cannot combine them or transfer money between them. If you die, your HSA passes to your beneficiary according to your will or the account's beneficiary designation. If your spouse is the beneficiary, they can treat it as their own HSA. If anyone else is the beneficiary, the account is taxed as income to them in the year of your death.

Frequently Asked Questions

Can I use my HSA to pay for my family members' medical expenses?

Yes. You can pay for medical expenses of your spouse and dependents, even if they're not covered under your health plan. The expenses must be may have access to medical costs. You don't need to be the one receiving the treatment—if your child needs dental work or your spouse needs a prescription, you can use your HSA to pay for it.

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

Before age 65, you owe income tax on the amount plus a 20% penalty. After age 65, you owe income tax but no penalty. Keep receipts for all medical expenses in case the IRS asks you to prove the withdrawal was may have access to. If you can't prove it was medical, you'll owe the tax and penalty retroactively.

Can I have an HSA if I'm on Medicare?

No. Once you enroll in Medicare, you become ineligible to make new contributions to an HSA. You can still withdraw money from an existing HSA for any reason without penalty (though non-medical withdrawals are taxed). If you delay Medicare enrollment and stay on an HDHP, you can continue contributing to your HSA.

Is there a important date to spend HSA money each year?

No. Unlike an FSA, an HSA has no annual important date. Money rolls over automatically year to year. You can let it accumulate and use it whenever you need it, or invest it for long-term growth.

What if my employer contributes to my HSA—does that count toward my contribution limit?

Yes. Your employer's contributions and your own contributions combined cannot exceed the annual limit. If your employer contributes $2,000, you can contribute up to $2,150 (for individual coverage in 2024). Your employer should tell you how much they've contributed so you don't exceed the limit.