A Health Savings Account lets you set aside pre-tax money for medical expenses, and any balance you don't spend rolls over year to year

A Health Savings Account (HSA) is a savings account tied to a high-deductible health insurance plan. You put money into it before taxes are taken out of your paycheck, use it to pay for medical costs, and keep whatever you don't spend. Unlike a flexible spending account (FSA), which forces you to use the money or lose it each year, an HSA balance stays with you indefinitely and can grow over time.

The account works in three parts: you contribute money (usually through payroll deduction), you withdraw it to pay for may be able to access medical expenses, and any leftover balance earns interest or investment returns. The money you contribute reduces your taxable income, the withdrawals for medical care come out tax-free, and after age 65 you can withdraw for any reason (though non-medical withdrawals are taxed like regular income).

Key Takeaways

  • You can only open an HSA if you are enrolled in a high-deductible health plan (HDHP), and you must not be covered by other health insurance or claimed as a dependent on someone else's taxes.
  • Contributions reduce your taxable income, and withdrawals for may be able to access medical expenses are never taxed, making the account a triple tax advantage.
  • Your HSA balance rolls over each year and belongs to you even if you change jobs or health plans, though you cannot contribute once you enroll in Medicare.
  • You can use HSA funds to pay for deductibles, copays, prescriptions, dental work, vision care, and many other medical expenses, but not for insurance premiums (with limited exceptions) or over-the-counter items without a prescription.
  • After age 65, you can withdraw money for any reason, but non-medical withdrawals are taxed as income.

Who can open an HSA and when

To open an HSA, you must be enrolled in a high-deductible health plan (HDHP) and meet IRS requirements. An HDHP is a health insurance plan with a deductible of at least $1,600 for individual coverage or $3,200 for family coverage (these minimums change yearly). You cannot have other health coverage at the same time—no spouse's plan, no parent's plan, no Medicare, no Medicaid, and no TRICARE. You also cannot be claimed as a dependent on someone else's tax return.

You can open an HSA through your employer if they offer one, through a bank or financial institution on your own, or through a health insurance marketplace. The account is yours personally; if you leave your job, the HSA stays with you. You can contribute during any month you meet the requirements, and you have until the tax filing deadline (usually April 15) of the following year to make contributions for the prior year.

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 are age 55 or older, you can add an extra $1,000 per year (called a catch-up contribution). These limits apply to all your HSAs combined—if you have two accounts, your total contributions across both cannot exceed the limit.

Most people contribute through payroll deduction, which means the money comes out of your paycheck before federal income tax, Social Security tax, and Medicare tax are calculated. If you contribute on your own (not through payroll), you deduct the contribution on your tax return. Either way, the money reduces your taxable income for that year.

What you can and cannot pay for with HSA funds

HSA funds cover a broad range of medical expenses: deductibles, copays, coinsurance, prescription medications, dental work, vision care (including glasses and contacts), hearing aids, mental health treatment, and physical therapy. You can also use HSA money to pay for over-the-counter medications if you have a prescription from a doctor, and for medical equipment like blood pressure monitors or glucose meters.

You cannot use HSA funds for health insurance premiums, with three exceptions: COBRA continuation coverage, Medicare premiums (after you turn 65), and long-term care insurance premiums (up to certain limits). You also cannot use HSA funds for cosmetic procedures, gym memberships, vitamins without a medical condition, or over-the-counter items without a prescription. If you withdraw money for a non-may be able to access expense, that withdrawal is taxed as income and you pay a 20 percent penalty on top.

How to withdraw money and keep records

You withdraw from your HSA the same way you would from any savings account: through a debit card, check, bank transfer, or direct reimbursement request. Some HSAs issue a debit card that you can use at pharmacies or medical offices. Others require you to pay out of pocket and then request reimbursement by submitting receipts. A few allow you to set up automatic reimbursement from your health care provider.

Keep receipts and documentation for every withdrawal. The IRS does not require you to submit receipts when you file taxes, but you must be able to prove that withdrawals were for may be able to access expenses if you are audited. Many people photograph receipts or save them in a folder. If you withdraw money and later realize it was not for an may be able to access expense, you can put the money back into the account (called a redeposit) within a certain timeframe, though rules vary by HSA provider.

How your HSA balance grows and what happens to unused money

Any money you do not spend in a given year stays in your account and earns interest or investment returns, depending on how your HSA is set up. Some HSAs function like savings accounts and earn a small interest rate. Others let you invest the balance in mutual funds or stocks, similar to a 401(k). The growth is tax-free as long as you eventually use the money for medical expenses.

Unlike an FSA, there is no "use it or lose it" rule. You can let your HSA balance accumulate for decades if you want. This makes an HSA a powerful long-term savings tool: you can pay for medical expenses out of pocket and leave the HSA money invested, then reimburse yourself years later. Some people use their HSA as a retirement account, paying medical expenses out of pocket during working years and letting the HSA grow, then withdrawing for medical costs in retirement.

What happens to your HSA if you change jobs or health plans

Your HSA is yours to keep. If you leave your job, the account does not disappear—you own it outright. You can continue to use the balance for medical expenses for the rest of your life. You can also continue to contribute to it if you enroll in another HDHP with a new employer or through the individual market.

If you switch to a non-HDHP health plan (such as a PPO or HMO with a lower deductible), you can no longer contribute to your HSA, but you can still withdraw from the existing balance for medical expenses. Once you enroll in Medicare, you cannot contribute anymore, though you can still use the balance. If you die, your HSA passes to your beneficiary (usually your spouse or estate), and the rules for what they can do with it depend on their relationship to you.

HSA investment options and fees

Some HSA providers let you invest your balance in mutual funds, index funds, or other securities once you reach a minimum balance (often $1,000 to $2,500). This is optional—you can keep your money in a savings account if you prefer. If you do invest, you pay investment fees, which vary by provider and fund. Compare fees before choosing an HSA, because high fees can eat into your returns over time.

HSA providers also charge maintenance fees, monthly fees, or per-transaction fees. Some employers offer HSAs with no fees, while others charge $2 to $5 per month. If you are opening an HSA on your own, look for providers that waive fees for low balances or offer fee-free accounts. The fee structure matters more if you have a small balance; if you plan to accumulate a large balance over many years, investment returns usually outweigh modest fees.

Frequently Asked Questions

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

Yes. HSA funds can be used for medical expenses of you, your spouse, and your dependents, regardless of whether they are covered under your health plan. You do not need to be on the same insurance plan to use HSA money for their care.

What happens if I withdraw money from my HSA for a non-medical expense?

The withdrawal is taxed as ordinary income, and you pay a 20 percent penalty on the amount withdrawn. After age 65, the income tax still applies to non-medical withdrawals, but the 20 percent penalty goes away. Keep receipts to prove withdrawals were medical in case you are audited.

Can I contribute to an HSA and an FSA at the same time?

No. You cannot have both an HSA and an FSA in the same year. However, you can have an HSA and a limited-purpose FSA (which only covers dental and vision expenses), or an HSA and a dependent care FSA (for childcare). Check with your employer about which combination is allowed.

What if I do not use all my HSA money by the end of the year?

Unlike an FSA, unused HSA money does not disappear. Your balance rolls over to the next year and the year after that, indefinitely. You can let it accumulate and use it whenever you have medical expenses, even decades later.

Can I withdraw HSA money to pay for health insurance premiums?

Generally no, but there are three exceptions: COBRA continuation coverage, Medicare premiums (once you turn 65), and long-term care insurance premiums up to IRS limits. Regular health insurance premiums, including those for your employer plan, cannot be paid with HSA funds.