A Health Savings Account lets you set aside pre-tax money for medical expenses and keep what you don't spend

An HSA is a savings account tied to a high-deductible health insurance plan. You put money in before taxes are taken out of your paycheck, use it to pay for may have access to medical costs, and anything left over stays in the account and grows year to year. Unlike a flexible spending account (FSA), you don't lose unspent money at the end of the year — it rolls forward indefinitely, and after age 65 you can withdraw it for any reason without penalty (though non-medical withdrawals before 65 are taxed).

The account is yours to keep even if you change jobs or health plans, as long as you stay enrolled in a high-deductible plan. You control the money, not your employer or insurance company. That ownership is the core difference between an HSA and other workplace health accounts.

Key Takeaways

  • You contribute pre-tax dollars through payroll deduction or directly to the account, and the IRS sets annual limits on how much you can put in.
  • You withdraw money to pay for may have access to medical expenses — doctor visits, prescriptions, dental work, vision care, and many other costs — using a debit card, check, or reimbursement request.
  • Money you don't spend stays in the account and can be invested in mutual funds or left in cash, earning growth that you keep tax-free if used for medical expenses.
  • After age 65, you can withdraw money for any reason without penalty, though non-medical withdrawals are subject to income tax.
  • The account follows you if you change jobs or insurance, making it a long-term savings tool separate from your employer.

Who can open an HSA and what are the requirements

You must be enrolled in a high-deductible health plan (HDHP) to open or contribute to an HSA. The IRS defines an HDHP by its deductible amount — for 2024, that's at least $1,600 for individual coverage or $3,200 for family coverage. Your plan must also have an out-of-pocket maximum (the most you'll pay in a year before insurance covers everything) that doesn't exceed $8,050 for individual or $16,100 for family coverage.

You cannot have other health coverage at the same time, with narrow exceptions for specific plans like dental-only or vision-only insurance. You also cannot be claimed as a dependent on someone else's tax return, and you cannot be enrolled in Medicare. If you meet these conditions, you can open an HSA through your employer's plan administrator, a bank, a brokerage, or an insurance company that offers HSAs.

How contributions work and what the annual limits are

You can contribute money to an HSA in three ways: through payroll deduction (the most common route if your employer offers it), by depositing money directly into the account yourself, or through a combination of both. Payroll contributions are deducted before income tax and Social Security tax are calculated, which reduces your taxable income for the 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 yearly. If you're 55 or older, you can add an extra $1,000 per year (called a catch-up contribution). Your total contributions from all sources — employer, employee, and any other deposits you make — cannot exceed the annual limit, or you'll owe taxes and penalties on the overage.

If you enroll in an HDHP partway through the year, you can still contribute the full annual amount if you remain enrolled through December 31 and the following March 31 (this is called the testing period). If you drop coverage before the testing period ends, you'll have to return the excess contributions.

What you can spend HSA money on

HSA funds can pay for any medical expense that would be deductible on your tax return. That includes doctor visits, hospital stays, surgery, prescription medications, and mental health treatment. It also covers dental work (fillings, cleanings, orthodontics), vision care (eye exams, glasses, contact lenses), hearing aids, and medical equipment like crutches or blood pressure monitors.

Some less obvious expenses count too: acupuncture, chiropractic care, physical therapy, and certain over-the-counter medications (you need a prescription for most OTC drugs, but some like insulin don't require one). Cosmetic procedures don't count unless they're medically necessary — for example, reconstructive surgery after an injury qualifies, but elective Botox doesn't.

You cannot use HSA money for health insurance premiums (with three exceptions: COBRA continuation coverage, long-term care insurance, and health insurance while you're receiving unemployment benefits). You also cannot use it for gym memberships, vitamins, or general wellness products unless they treat a specific medical condition.

How to withdraw money and keep records

Most HSAs come with a debit card that you can use at pharmacies, doctor's offices, and hospitals just like a regular payment card. Some accounts also let you write checks or submit reimbursement requests online. If you pay out of pocket for a medical expense, you can request reimbursement from your HSA at any time — there's no deadline, so you could pay for something today and reimburse yourself from the account years later.

Keep receipts and documentation for every withdrawal. The IRS doesn't require you to submit them when you withdraw, but you must be able to prove that the money went to may have access to medical expenses if you're ever audited. Many HSA providers track your spending automatically if you use the debit card, but you're responsible for maintaining records.

If you withdraw money for a non-may have access to expense before age 65, you'll owe income tax on that amount plus a 20% penalty. After age 65, the 20% penalty goes away, but you still owe income tax on non-medical withdrawals — they're treated like regular income.

How HSA money grows and investment options

HSA funds can sit in a cash account earning minimal interest, or you can invest them in mutual funds, stocks, or other securities through your HSA provider. Any growth — whether from interest, dividends, or investment gains — is tax-free as long as you use the money for may have access to medical expenses. This makes an HSA a powerful long-term savings tool, especially if you don't need to tap it every year.

Not all HSA providers offer investment options. Some only allow cash accounts, while others require you to keep a minimum balance in cash (often $1,000 to $2,500) before you can invest the rest. Check your provider's rules before opening an account if investing is important to you. The investment choices available vary widely — some providers offer dozens of mutual funds, while others offer only a handful.

What happens to your HSA if you change jobs or insurance

Your HSA stays with you. If you leave your job, the account doesn't close and the money doesn't disappear. You can roll it over to a new HSA at a different bank or provider, or you can leave it where it is and continue to manage it independently. Some people keep their old HSA open for the investment options or low fees, even after they've moved on.

If you switch to a non-high-deductible health plan, you can no longer make new contributions, but the money already in the account remains yours and you can still withdraw it for may have access to medical expenses. If you later re-enroll in an HDHP, you can start contributing again. This flexibility makes an HSA useful even if your insurance situation changes.

Frequently Asked Questions

Can I use my HSA to pay my health insurance deductible?

Yes. Your deductible is a may have access to medical expense, so you can use HSA funds to pay it. This is one of the main reasons people fund HSAs — the money covers the gap between what insurance pays and what you owe out of pocket.

What's the difference between an HSA and an FSA?

An FSA is a workplace account where unspent money is forfeited at the end of the year (with a small carryover option in some plans). An HSA rolls over indefinitely, you own it regardless of employment, and it can be invested. FSAs don't require a high-deductible plan. HSAs are generally better for long-term savings.

Can I withdraw money from my HSA for non-medical reasons?

Yes, but before age 65 you'll owe income tax plus a 20% penalty on the non-medical amount. After 65, you can withdraw for any reason and only owe income tax (no penalty). This makes HSAs useful as retirement accounts if you've built up a balance.

Do I have to use my HSA money every year or does it roll over?

It rolls over. Unlike FSAs, there's no "use it or lose it" rule. Money stays in your HSA indefinitely, and you can withdraw it whenever you need it for may have access to medical expenses, even years later.

What happens to my HSA if I turn 65?

You can no longer make new contributions once you enroll in Medicare, but the money already in the account stays yours. After 65, you can withdraw for any reason without the 20% penalty — you only owe income tax on non-medical withdrawals, making it function like a traditional retirement account.