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

An HSA (Health Savings Account) is a savings account you own that holds money specifically for medical expenses. Unlike a regular savings account, contributions you make to an HSA reduce your taxable income, the money grows tax-free, and withdrawals for may have access to medical costs are not taxed. You must be enrolled in a high-deductible health plan (HDHP) to open and contribute to an HSA — this is a legal requirement, not optional.

The account belongs to you, not your employer or insurance company. If you change jobs or health plans, the account stays yours. You can carry unused money forward year to year with no "use it or lose it" deadline, which makes an HSA different from a flexible spending account (FSA).

Key Takeaways

  • You can only open an HSA if you are enrolled in a high-deductible health plan; enrollment in a regular or low-deductible plan disqualifies you.
  • Money you contribute to an HSA reduces your taxable income for that year, and withdrawals for medical expenses are never taxed.
  • You can use HSA funds to pay 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.
  • Unused HSA money rolls over each year and never expires, so you can save for future medical costs or retirement.
  • If you withdraw HSA money for non-medical reasons before age 65, you pay income tax plus a 20 percent penalty; after 65, you pay only income tax.

Who can open an HSA and when

You must meet three conditions to open an HSA. First, you must be enrolled in a high-deductible health plan. The IRS sets the minimum deductible each year — for 2024, that is $1,600 for individual coverage and $3,200 for family coverage. Your plan must also have an out-of-pocket maximum (the most you pay in a year before insurance covers everything) that does not exceed $4,050 for individual or $8,050 for family coverage in 2024. These numbers change annually.

Second, you cannot be enrolled in any other health insurance at the same time, with narrow exceptions: you can have dental, vision, or accident insurance alongside an HDHP. You also cannot be claimed as a dependent on someone else's tax return.

Third, you cannot be enrolled in Medicare. Once you turn 65 and become may be able to access for Medicare, you can no longer contribute new money to an HSA, though you can still withdraw existing funds for medical expenses.

You open an HSA through a bank, credit union, or insurance company that offers them — not through your employer, though your employer may offer one as a payroll option. If your employer offers an HSA, you can also open one independently elsewhere.

How much you can contribute and when

The IRS sets annual contribution limits, which change each year. 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 55 or older, you can contribute an additional $1,000 per year as a catch-up contribution. These limits apply to the total of all your HSA accounts combined — if you have two HSAs at different banks, your contributions to both cannot exceed the annual limit.

You can contribute money to your HSA from January 1 through December 31 of the year you are enrolled in an HDHP. You can also make contributions until the tax filing deadline (usually April 15 of the following year) for the prior year, as long as you were enrolled in an HDHP for the entire prior year.

If your employer offers an HSA, they may contribute on your behalf through payroll deduction, which reduces your taxable income automatically. You can also contribute on your own by depositing money directly into the account.

What you can and cannot pay for with HSA funds

HSA funds can pay for a wide range of medical, dental, and vision expenses. may have access to expenses include doctor visits and hospital stays, prescription medications, dental cleanings and root canals, eyeglasses and contact lenses, hearing aids, mental health counseling, physical therapy, and many over-the-counter items if prescribed by a doctor. You can also use HSA funds to pay your health insurance deductible and copayments.

You cannot use HSA funds for health insurance premiums, with one exception: if you are receiving unemployment benefits, you can use HSA funds to pay for COBRA continuation coverage or health insurance purchased through the marketplace. You also cannot use HSA funds for cosmetic procedures, vitamins or supplements not prescribed by a doctor, or over-the-counter medications like pain relievers or cold medicine unless a doctor has written a prescription for them specifically.

The IRS publishes a detailed list of may have access to medical expenses. If you are unsure whether a specific cost qualifies, you can ask your HSA provider or check the IRS website before you withdraw the money.

How HSA money grows and what happens to unused funds

Most HSAs allow you to invest unused funds in stocks, bonds, or mutual funds, similar to a retirement account. The money grows tax-free, and you pay no tax on the growth when you withdraw it for medical expenses. Some HSAs keep funds in a cash account earning interest instead; the terms depend on your provider.

Unlike an FSA, there is no deadline to spend HSA money. Unused funds roll over to the next year automatically, and you can keep accumulating money indefinitely. This makes an HSA useful as a long-term savings tool for future medical costs, including costs in retirement.

If you withdraw money from your HSA for a non-medical reason before age 65, you owe income tax on the withdrawal plus a 20 percent penalty. After age 65, you can withdraw money for any reason and pay only income tax (no penalty), though withdrawals for non-medical reasons are still taxed as ordinary income.

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

Your HSA is yours to keep. If you leave your job, change employers, or switch to a different health plan, the account does not close and the money does not disappear. You can continue to use the funds for medical expenses as long as you remain enrolled in an HDHP.

If you switch to a health plan that is not a high-deductible plan, you can no longer make new contributions to your HSA, but you can still withdraw existing funds for medical expenses. If you later re-enroll in an HDHP, you can resume contributions.

Some employers offer HSAs through a specific provider; if you leave that job, you may need to transfer your account to a different HSA provider or open a new one. The process is called a trustee-to-trustee transfer and does not trigger taxes or penalties.

HSA vs. FSA: key differences

A flexible spending account (FSA) is similar to an HSA but works differently in important ways. An FSA is offered only through an employer, and money you do not spend by the end of the year is forfeited — there is no rollover. An HSA is portable (you own it), money rolls over indefinitely, and you can invest unused funds. You can have an FSA and an HSA at the same time only if your FSA is a limited-purpose FSA that covers only dental and vision expenses.

An FSA does not require enrollment in a high-deductible plan, so it may be an option if your employer offers a traditional health plan. However, if you have access to an HSA through an HDHP, the HSA is usually the better choice because of the rollover feature and portability.

Frequently Asked Questions

Can I open an HSA if my employer does not offer one?

Yes. You can open an HSA independently through a bank, credit union, or insurance company as long as you are enrolled in a high-deductible health plan. You do not need your employer to offer an HSA to open one on your own.

What happens to my HSA if I lose my job?

Your HSA stays with you. The account is yours, not your employer's. You can continue to use the funds for medical expenses and can keep the account open even after you leave the job, as long as you remain enrolled in a high-deductible health plan through another source (such as a spouse's plan or marketplace coverage).

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

Yes, as long as your spouse is covered under your health insurance plan or you file taxes jointly. HSA funds can pay for medical expenses of you, your spouse, and any dependents you claim on your tax return, regardless of whose name is on the HSA account.

What records do I need to keep for HSA withdrawals?

Keep receipts and documentation for any medical expenses you pay with HSA funds. The IRS can audit HSA accounts, and you may need to prove that withdrawals were for may have access to medical expenses. You do not have to submit receipts when you withdraw money, but you must have them available if asked.

Can I use my HSA to pay for health insurance premiums?

Generally no, with one exception: if you are receiving unemployment benefits, you can use HSA funds to pay for COBRA continuation coverage or health insurance purchased through the marketplace. You cannot use HSA funds to pay premiums for regular employer-sponsored health plans or Medicare premiums.