You need a high-deductible health plan first, then open an HSA through a bank or financial institution

A Health Savings Account (HSA) is a savings account tied to a specific type of health insurance. You cannot open one without that insurance in place. The process itself takes about 15 minutes online or by phone, but the real work is choosing the right health plan — which happens during your employer's open enrollment or during the federal open enrollment period (usually November through December for coverage starting January 1).

If you already have a high-deductible health plan (HDHP), you can open an HSA immediately. If you do not, you will need to switch to an HDHP first. That switch typically happens once a year, though life events like losing coverage or changing jobs can open a window outside the normal enrollment period.

Once your HDHP is active, you choose where to open the account — your health insurance company often offers one, but you can also use a bank, credit union, or investment firm. Each charges different fees and offers different investment options, so comparing them before you open is worth the time.

Key Takeaways

  • You must be enrolled in a high-deductible health plan to open an HSA; you cannot have one without it.
  • If your employer offers an HSA, opening it through them is usually free or low-cost, but you can open one elsewhere if you prefer different investment options.
  • You can contribute money yourself, your employer can contribute, or both — contributions are tax-deductible up to annual limits set by the IRS.
  • Money you do not spend stays in the account and grows year to year; you own it even if you change jobs or health plans.
  • You can use HSA funds for may have access to medical expenses now or save them for retirement, but non-medical withdrawals before age 65 are taxed as income plus a 20 percent penalty.

Confirm your health plan meets HSA requirements

Not every health plan qualifies. Your plan must be a high-deductible health plan, which means it has a minimum deductible (the amount you pay out of pocket before insurance kicks in) and a maximum out-of-pocket limit. For 2024, the IRS sets the minimum deductible at $1,600 for individual coverage and $3,200 for family coverage, though your actual deductible may be higher. Your plan documents or your insurance company's website will state your deductible clearly.

You also cannot be covered by any other health insurance at the same time — no spouse's plan, no parent's plan, no separate accident or dental plan that covers medical care. Medicare also disqualifies you. If you are unsure whether your current plan qualifies, call your insurance company and ask directly: "Is this plan HSA-may be able to access?" They will tell you yes or no.

If your plan does not may have access to and you want an HSA, you will need to switch plans. This usually happens during open enrollment at your job or during the federal open enrollment period. If you recently lost coverage, changed jobs, or had a may have access to life event, you may be able to switch outside the normal window.

Choose where to open your HSA

Your health insurance company often offers an HSA, and opening it through them is usually the simplest path — they already have your enrollment information and can set it up automatically. However, you are not required to use their account. Banks, credit unions, investment firms, and HSA-specific providers all offer them.

The main differences between providers are fees, investment options, and customer service. Some charge monthly maintenance fees ($2 to $5), some charge per transaction, and some are free. If you plan to invest the money rather than just hold it in cash, you want a provider that offers low-cost mutual funds or index funds. If you plan to spend it on medical expenses this year, fees matter less and a simple cash account through your insurance company is fine.

Compare a few options before you decide. Look at the fee schedule, the investment menu, and whether they offer online access and a debit card. Many employers that offer HSAs have already negotiated with a provider and set up payroll deduction, which makes funding automatic — that is worth considering even if the provider is not your first choice.

Open the account and provide required information

Once you have chosen a provider, you will fill out an application — online, by phone, or on paper depending on the provider. You will need your Social Security number, date of birth, address, and proof of your HDHP enrollment. Some providers ask you to upload a copy of your insurance card or a letter from your employer confirming your plan type.

The application takes 10 to 15 minutes. Most providers approve you the same day or within one business day. Once approved, you can start funding the account immediately, either through a one-time deposit, automatic transfers, or payroll deduction if your employer offers it.

Keep your account number and login information somewhere safe. You will need them to make deposits, track spending, and file taxes at the end of the year.

Fund your account through payroll, direct deposit, or manual transfer

The easiest way to fund an HSA is through payroll deduction if your employer offers it. Money comes out of your paycheck before taxes, which lowers your taxable income. You set the amount during open enrollment or when you first set up the account, and it continues until you change it or leave the job.

If your employer does not offer payroll deduction, you can transfer money yourself from your bank account. You can do this online, by check, or by automatic transfer. Any money you contribute yourself is tax-deductible when you file your taxes, but you have to claim it on your tax return — it does not happen automatically.

Your employer can also contribute to your HSA. If they do, that money is not taxed as income to you. Some employers contribute a flat amount each year; others match a percentage of what you contribute. Check your benefits documents or ask your HR department what your employer offers.

The IRS sets annual contribution limits. For 2024, you can contribute up to $4,150 for individual coverage or $8,300 for family coverage. If you are 55 or older, you can add an extra $1,000 per year. These limits change annually, so check the IRS website or your provider's materials each year.

Understand what you can spend HSA money on

HSA funds can pay for may have access to medical expenses — a specific list defined by the IRS. This includes deductibles, copays, coinsurance, and prescriptions. It also covers dental work, vision care, hearing aids, and mental health treatment. Physical therapy, lab tests, X-rays, and surgery all may have access to. Over-the-counter medications like pain relievers and allergy medicine may have access to if you have a prescription or a doctor's note.

Some things do not may have access to: cosmetic surgery, gym memberships, vitamins without a medical condition, and most over-the-counter items without a prescription. If you are unsure whether something qualifies, ask your HSA provider or check the IRS publication on medical expenses.

You can use HSA money to pay medical bills from any year — past, present, or future. You do not have to spend it in the year you contribute it. Money you do not spend stays in the account and grows. This is different from a Flexible Spending Account (FSA), which requires you to spend the money or lose it each year.

Know the tax and penalty rules for withdrawals

If you withdraw money for a may have access to medical expense, there is no tax and no penalty — that is the whole point of the account. Keep receipts and records in case the IRS asks.

If you withdraw money for something that is not a may have access to medical expense before age 65, you owe income tax on the withdrawal plus a 20 percent penalty. For example, if you withdraw $1,000 for a non-medical expense and you are in the 22 percent tax bracket, you owe $220 in taxes plus $200 in penalty — a total of $420 out of the $1,000.

After age 65, you can withdraw money for any reason without the 20 percent penalty. You still owe income tax on non-medical withdrawals, but the penalty goes away. This makes an HSA a useful retirement savings tool if you do not spend all the money on medical expenses.

Frequently Asked Questions

Can I open an HSA if I am self-employed?

Yes. You need a high-deductible health plan, which you can buy through the healthcare marketplace or a private insurer. Once you have the plan, you can open an HSA through any provider. You contribute the money yourself and claim the deduction on your tax return.

What happens to my HSA if I change jobs?

The account stays yours. You own it, not your employer. If your new job offers an HSA, you can keep your old one or open a new one — or both. If your new job does not offer an HSA, you can keep the old account as long as you stay enrolled in an HDHP. If you switch to a non-HDHP plan, you can no longer contribute, but you can still withdraw money for medical expenses.

Can I invest HSA money in stocks or mutual funds?

Yes, if your provider offers investment options. Some HSAs are cash-only, but many let you invest in mutual funds, index funds, or other securities. Money you invest can grow tax-free. Check your provider's investment menu before you open the account if this matters to you.

Do I have to use an HSA debit card, or can I pay out of pocket and reimburse myself later?

You can do either. Some people use the debit card for immediate payment. Others pay medical bills from their regular bank account and then reimburse themselves from the HSA later — even years later. Both are allowed as long as the expense is may have access to and you have receipts.

What if I do not use all my HSA money in a year?

It rolls over. Unlike an FSA, there is no "use it or lose it" rule. Money stays in your account year after year and can be invested to grow. You can save it for future medical expenses or for retirement.