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

A Health Savings Account (HSA) lets you set aside pre-tax money to pay for medical expenses now or in the future. The account belongs to you — not your employer or insurance company — and the money rolls over year to year. You contribute to it, you control it, and you decide when to spend it.

HSAs are only available if you're enrolled in a high-deductible health plan (HDHP). The IRS sets the minimum deductible each year; for 2024, that's $1,600 for individual coverage and $3,200 for family coverage. If your plan's deductible is at least that high, you're may be able to access to open and contribute to an HSA.

The real advantage is the tax treatment: money you contribute reduces your taxable income, the money grows tax-free, and withdrawals for may have access to medical expenses are tax-free. That's three layers of tax benefit — something you don't get with a regular savings account or most other accounts.

Key Takeaways

  • HSAs require enrollment in a high-deductible health plan and let you save pre-tax money for medical costs both now and decades into retirement.
  • You can withdraw HSA funds tax-free only for may have access to medical expenses, which include deductibles, copays, prescriptions, dental work, and vision care, but not insurance premiums or cosmetic procedures.
  • Contribution limits are set by the IRS each year; for 2024, you can contribute up to $4,150 for individual coverage or $8,300 for family coverage.
  • Money in an HSA is yours to keep and invest — it doesn't disappear at the end of the year, and you can carry the account with you if you change jobs or insurance plans.
  • Withdrawals for non-medical expenses before age 65 are taxed as income plus a 20% penalty; after 65, non-medical withdrawals are taxed as income but the penalty goes away.

How much you can contribute each year

The IRS sets annual contribution limits, and they change most years. 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 add an extra $1,000 catch-up contribution.

Your employer may contribute to your HSA as part of your benefits package — that money counts toward your limit, not in addition to it. If you're self-employed or your employer doesn't offer an HSA, you can open one on your own through a bank, credit union, or investment firm and contribute the full amount yourself.

You can contribute throughout the year, but there's a deadline: you have until the tax filing deadline (usually April 15) to make contributions for the previous year. If you enroll in an HDHP mid-year, you can still contribute a prorated amount for that year.

What counts as a may have access to medical expense

may have access to medical expenses are specific and defined by the IRS. They include your insurance deductible, copays, coinsurance, prescription medications, dental work, vision care (including glasses and contacts), hearing aids, and mental health treatment. You can also use HSA funds for medical equipment like crutches, wheelchairs, or blood pressure monitors.

What doesn't count: health insurance premiums (with narrow exceptions for COBRA, long-term care insurance, and Medicare premiums after age 65), cosmetic procedures, gym memberships, over-the-counter vitamins (unless prescribed by a doctor), or elective procedures. The IRS publishes a full list, and when you're unsure, it's worth checking before you withdraw.

You don't have to spend the money in the same year you contribute it. Unlike a flexible spending account (FSA), HSA funds don't expire. You can let the account grow for years and use it for future medical costs, or even save it for retirement medical expenses.

How HSA funds are invested and grow

Once money is in your HSA, you can leave it in a cash account (like a savings account) or invest it in stocks, bonds, or mutual funds — depending on what your HSA provider offers. If you invest it, the growth is tax-free, which means an HSA can function as a long-term retirement savings tool, not just a current-year medical fund.

Many people use HSAs this way: they contribute the maximum each year, pay current medical expenses out of pocket if they can afford to, and let the HSA balance grow. By retirement, they have a substantial account that can cover Medicare premiums, copays, and other health costs without being taxed.

The investment options vary by provider. Some HSA accounts through banks offer only savings accounts with minimal interest. Others, through investment firms or larger employers, let you choose from a menu of mutual funds or index funds. If investment growth matters to your plan, compare providers before opening an account.

What happens to your HSA if you change jobs or insurance

Your HSA is portable — it stays with you even if you leave your job or switch health plans. If your employer was contributing to your HSA, those contributions stop, but the money you've already saved remains yours. You can keep the account open and continue to use it for may have access to expenses, and you can keep contributing if you're still enrolled in an HDHP.

If you switch to a non-HDHP (like a traditional PPO or HMO), you can no longer contribute new money to the HSA, but you can still withdraw funds for may have access to medical expenses. Once you enroll in another HDHP later, you can resume contributions.

If you leave your job and your employer's HSA provider closes your account, you can roll the balance to an HSA you open on your own — similar to rolling over a 401(k). The money doesn't get taxed or penalized; it simply moves to your new account.

Tax implications and penalties for non-medical withdrawals

Withdrawals for may have access to medical expenses are tax-free and penalty-free at any age. But if you withdraw money for something that doesn't count as a may have access to expense, the withdrawal is taxed as ordinary income, plus you pay a 20% penalty — unless you're 65 or older.

Once you turn 65, the penalty disappears. You can still withdraw money for non-medical expenses, and it will be taxed as income, but there's no additional penalty. This is why some people view an HSA as a retirement account: after 65, it functions like a traditional IRA, except the medical withdrawals remain tax-free.

Keep receipts for all medical expenses you pay with HSA funds. The IRS doesn't require you to submit them when you withdraw, but you need them if you're ever audited and need to prove the withdrawal was for a may have access to expense.

HSA vs. FSA: key differences

Both HSAs and Flexible Spending Accounts (FSAs) let you use pre-tax money for medical expenses, but they work differently. An FSA is tied to your job and typically has a "use it or lose it" rule — money left unspent at the end of the year is forfeited (though some employers allow a small carryover). An HSA has no expiration; money rolls over indefinitely.

An FSA is also employer-owned, meaning the account closes if you leave your job. An HSA is yours to keep. FSAs also have lower contribution limits — usually $3,200 per year — and you can't invest the money; it sits in a cash account.

If your employer offers both, you have to choose one or the other. If you have an HDHP and want to save for future medical costs, an HSA is usually the better choice. If you have a traditional health plan and want to reduce your out-of-pocket costs this year, an FSA may be available to you.

Frequently Asked Questions

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

Yes, if your spouse is covered under your family HDHP plan. You can also use HSA funds for the medical expenses of any dependent you claim on your taxes, even if they're not on your insurance plan. The expense has to be may have access to; the person receiving the care doesn't have to be.

What happens to my HSA if I die?

The account passes to your beneficiary, usually your spouse or estate. If your spouse inherits it, they can continue to use it as an HSA. If a non-spouse beneficiary inherits it, the account becomes taxable to them, though they can still withdraw funds for the deceased's may have access to medical expenses without penalty.

Can I use my HSA to buy over-the-counter medications?

Only if they're prescribed by a doctor. Aspirin, cold medicine, or allergy pills you buy on your own don't count. But if your doctor writes a prescription for an over-the-counter medication, you can use HSA funds to pay for it.

Do I have to use my HSA every year, or can I just save it?

You can save it indefinitely. Unlike an FSA, there's no deadline to spend HSA money. Many people contribute the maximum each year and pay current medical expenses out of pocket, letting the HSA grow for future use or retirement.

What if I'm no longer in an HDHP — can I still use my HSA?

You can still withdraw money for may have access to medical expenses, but you can't make new contributions. If you enroll in another HDHP later, you can resume contributions. The money you've already saved stays in the account and grows tax-free.