An HSA is a savings account you own that holds money for medical expenses, separate from your health insurance

A Health Savings Account (HSA) is a tax-advantaged savings account designed to pay for may have access to medical costs. You contribute money to it, the money grows tax-free, and you withdraw it tax-free when you use it for may be able to access medical expenses. Unlike a flexible spending account (FSA) through your employer, an HSA stays with you — you own it, you control it, and the money does not disappear at the end of the year.

To open an HSA, you must be enrolled in a high-deductible health plan (HDHP). The IRS sets the minimum deductible each year; for 2024, that means at least $1,600 for individual coverage or $3,200 for family coverage. Once you meet that requirement, you can open an HSA through a bank, insurance company, or financial institution — often the same place that offers your HDHP.

The account works like a three-way tool: you put money in (and get a tax deduction), it sits there earning interest or investment returns, and you pull it out to pay doctors, pharmacies, and other medical providers. You are not required to spend the money in any particular year. If you do not use it, it rolls over and stays yours indefinitely.

Key Takeaways

  • An HSA requires enrollment in a high-deductible health plan and lets you set aside pre-tax money for medical expenses you control.
  • Contributions reduce your taxable income, growth is tax-free, and withdrawals for may have access to medical expenses are tax-free — a triple tax advantage.
  • Unlike FSAs, HSA money does not expire at the end of the year and can be invested to grow over time.
  • You can use HSA funds for doctor visits, prescriptions, dental work, vision care, and many other medical costs, but not for insurance premiums or over-the-counter items without a prescription.
  • After age 65, you can withdraw money for any reason without penalty, though non-medical withdrawals are taxed as income.

The three tax advantages that make an HSA different

An HSA gives you a tax break at three points: when money goes in, while it sits there, and when you take it out for medical care. When you contribute to an HSA, that money is deducted from your taxable income — so if you earn $50,000 and put $3,000 into an HSA, you only pay income tax on $47,000. If your employer offers an HSA and deducts contributions from your paycheck, those deductions happen before taxes are calculated.

Money in the account earns interest or investment returns, and you pay no tax on that growth. Some HSA providers let you invest the balance in mutual funds or other securities, similar to a retirement account. Others keep it in a savings account earning a small interest rate. Either way, the earnings are tax-free.

When you withdraw money to pay for a may have access to medical expense — a doctor visit, prescription, dental work, or hospital bill — that withdrawal is not taxed. This is the core benefit: you are using pre-tax dollars to pay for medical care, which lowers your overall tax bill and stretches your money further.

What you can and cannot pay for with HSA money

HSA funds cover a broad range of medical expenses. You can use them for doctor visits, hospital stays, surgery, prescriptions, dental work, vision care including glasses and contacts, hearing aids, mental health treatment, and physical therapy. You can also pay for some medical equipment and supplies — blood pressure monitors, glucose meters, crutches, and similar items. The IRS maintains a detailed list, but the general rule is that if a doctor prescribes it or it treats a medical condition, it likely qualifies.

Some items do not may have access to. Over-the-counter medications like cold medicine or pain relievers are not covered unless you have a prescription from a doctor. Health insurance premiums themselves are not covered, though you can use HSA money to pay for COBRA continuation coverage or premiums while you are unemployed. Cosmetic procedures, gym memberships, and general wellness products do not may have access to. Teeth whitening and most orthodontics do not may have access to, though some dental work does.

A useful rule of thumb: if the expense is primarily for general health or appearance rather than treating a specific medical condition, it probably does not may have access to. When in doubt, check with your HSA provider or the IRS publication on HSA-may be able to access expenses.

How much you can contribute and who can open one

The IRS sets annual contribution limits, which change each year. For 2024, you can contribute up to $4,150 if you have individual coverage under an HDHP, or $8,300 if you have family coverage. If you are 55 or older, you can add an extra $1,000 per year as a catch-up contribution. These limits apply to all your HSA accounts combined — if you have two HSAs, your total contributions across both cannot exceed the limit.

To open an HSA, you must be covered by an HDHP and cannot be covered by any other health insurance that is not an HDHP (with narrow exceptions for accident, disability, dental, vision, and long-term care coverage). You also cannot be claimed as a dependent on someone else's tax return, and you cannot be enrolled in Medicare. If you lose your HDHP coverage partway through the year, you can still contribute to your HSA for that year, but you must follow specific rules about how much.

You can open an HSA at any time during the year, though if you want to make a contribution for the current tax year, you have until the tax filing deadline (usually April 15) of the following year. Many people open an HSA through their employer's benefits plan, but you can also open one independently at a bank or financial institution if your employer does not offer one.

HSA versus FSA: why the differences matter

Both HSAs and FSAs let you set aside pre-tax money for medical expenses, but they work differently in ways that affect how much you benefit. An FSA is typically offered through your employer and has a "use it or lose it" rule — money you do not spend by the end of the plan year is forfeited (though some employers offer a grace period or carryover of up to $610). An HSA has no expiration date; money rolls over indefinitely and stays yours even if you change jobs or retire.

An HSA is portable and owned by you. If you leave your job, your HSA comes with you. An FSA is tied to your employer's plan and ends when you leave the job. You can sometimes convert an FSA balance to a different account, but the rules are strict and vary by plan.

An HSA can be invested, allowing your balance to grow over time. Most FSAs stay in a simple savings account. If you have a high medical expenses, an FSA may be better because you can access more money upfront. If you have low medical expenses and want to save for future costs, an HSA is usually the better choice because your money does not disappear.

What happens to your HSA after age 65 or if you stop using an HDHP

Once you turn 65, you can withdraw money from your HSA for any reason without the 20% penalty that applies to non-medical withdrawals before age 65. However, non-medical withdrawals are still taxed as ordinary income. This makes an HSA function like a retirement account after 65 — you can use it for medical expenses tax-free, or for anything else and pay income tax on it, similar to a traditional IRA.

If you stop being covered by an HDHP — because you switch to a different health plan or enroll in Medicare — you can no longer contribute to your HSA. However, the money already in the account stays there and you can continue to withdraw it for may have access to medical expenses tax-free for the rest of your life. If you withdraw money for non-medical reasons after leaving an HDHP, you pay income tax on it plus a 20% penalty, unless you are 65 or older.

Some people use an HSA as a long-term savings vehicle specifically because of this flexibility. By contributing the maximum each year and not withdrawing unless necessary, you can build a substantial balance that covers medical expenses in retirement.

How to use your HSA money when you need it

Most HSA providers give you a debit card linked to the account, so you can pay at the doctor's office, pharmacy, or hospital the same way you would with a regular debit card. Some providers also let you submit receipts for reimbursement — you pay out of pocket and then request the HSA to reimburse you. A few require you to request a check or transfer.

Keep receipts and documentation for every withdrawal. The IRS does not require you to submit proof when you withdraw, but you must be able to show that the money was used for may have access to medical expenses if you are ever audited. Some HSA providers track this automatically; others require you to keep your own records.

You can also leave money in your HSA and pay medical expenses out of pocket, then reimburse yourself from the HSA later — even years later. This strategy lets your HSA balance grow and gives you flexibility about when to take the tax-free withdrawal. As long as you have receipts showing the expense was may have access to and occurred after you opened the HSA, you can reimburse yourself at any point.

Frequently Asked Questions

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

HSA money rolls over indefinitely. Unlike an FSA, there is no "use it or lose it" rule. You can let your balance grow year after year and withdraw it whenever you need it for a may have access to medical expense, even decades later.

Can I use HSA money to pay my health insurance premium?

You cannot use HSA money to pay your regular health insurance premium. However, you can use it to pay for COBRA continuation coverage, premiums while you are unemployed and receiving unemployment benefits, or Medicare premiums after you turn 65.

What happens to my HSA if I change jobs?

Your HSA belongs to you, not your employer. When you change jobs, the account stays with you and you keep all the money in it. You can continue to use it for medical expenses and may be able to continue contributing if your new employer offers an HDHP, or you can open a new HSA independently.

Can I invest the money in my HSA?

Many HSA providers let you invest your balance in mutual funds, stocks, or other securities once it reaches a certain amount (often $1,000 or $2,000). Not all providers offer this option, so check with yours. Any investment gains are tax-free as long as you use the money for may have access to medical expenses.

What is the penalty if I use HSA money for something that is not medical?

If you withdraw HSA money for a non-medical expense before age 65, you pay income tax on the withdrawal plus a 20% penalty. After age 65, you pay income tax but no penalty. Keep receipts to prove expenses are medical and avoid the penalty.