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

A Health Savings Account (HSA) is a savings account you own and control that lets you set aside money before taxes to pay for medical expenses. Unlike a flexible spending account (FSA), which you lose if you don't spend the money by year-end, an HSA rolls over year to year and grows like an investment account. The money stays yours whether you use it this year or twenty years from now.

To open an HSA, you must be enrolled in a high-deductible health plan (HDHP) — a type of insurance with lower monthly premiums but a higher deductible. The IRS sets the minimum deductible each year; for 2024, it's $1,600 for individual coverage and $3,200 for family coverage. If your plan meets that threshold, you're HSA-may be able to access. You cannot have an HSA if you're on Medicare, covered by a spouse's non-HDHP plan, or claimed as a dependent on someone else's tax return.

Key Takeaways

  • You contribute pre-tax money to an HSA, which reduces your taxable income for the year and lowers what you owe in federal income tax.
  • Money in an HSA can be used to pay for may have access to medical expenses including deductibles, copays, prescriptions, dental work, and vision care without paying income tax on the withdrawal.
  • Unlike a flexible spending account, HSA funds roll over year to year and never expire, so you can save for future medical costs or retirement.
  • You can invest HSA funds in stocks, bonds, or mutual funds once your balance reaches a certain threshold, typically $1,000 to $2,500 depending on your provider.
  • After age 65, you can withdraw HSA money for any reason without penalty, though non-medical withdrawals are taxed as ordinary income.

How much you can contribute and who controls the money

The IRS sets annual contribution limits. For 2024, you can contribute up to $4,150 if you have individual coverage or $8,300 for family coverage. If you're 55 or older, you can add an extra $1,000 per year as a catch-up contribution. These limits change yearly, so check your plan documents or the IRS website each January.

You own the account outright. Your employer may contribute money (many do as part of benefits), but that doesn't change the fact that the account is yours. If you leave your job, the HSA stays with you — you don't lose it. You can move it to a different HSA provider, invest it, or simply let it sit. The account is separate from your health insurance, so if you switch plans or insurers, your HSA goes with you.

What medical expenses you can pay for with HSA funds

The IRS maintains a list of may have access to medical expenses. The most common ones are deductibles, copays, and coinsurance on any health plan. Prescription medications, insulin, and over-the-counter drugs (with a prescription from your doctor) all may have access to. Dental work including cleanings, fillings, and orthodontia counts. Vision care — eye exams, glasses, contact lenses, and laser surgery — is covered.

Less obvious expenses also may have access to: hearing aids, crutches, wheelchairs, and other durable medical equipment; mental health counseling and therapy; physical therapy; chiropractic care; acupuncture; and medical transportation. Cosmetic procedures do not may have access to unless they're medically necessary (reconstructive surgery after an accident does; a facelift does not). You can find the full IRS list on their website, and your HSA provider usually has a searchable database of common expenses.

You do not need to spend the money in the same year you contribute it. You can let it accumulate for years and use it whenever you need it. Some people use their HSA as a retirement savings tool, paying medical expenses out of pocket and leaving the HSA to grow untouched.

Tax advantages and how they work

An HSA gives you a triple tax benefit. First, contributions reduce your taxable income — if you earn $60,000 and contribute $3,000 to an HSA, you only pay income tax on $57,000. Second, the money inside the account grows tax-free; if you invest it and earn interest or gains, you don't pay tax on that growth. Third, withdrawals for may have access to medical expenses are not taxed at all.

This is different from a regular savings account or a taxable investment account, where you pay tax on interest and gains every year. It's also different from an FSA, where you must use the money by a deadline or lose it. With an HSA, the tax advantage applies whether you use the money this year or decades from now.

Investing HSA funds and building long-term savings

Most HSA providers let you invest your balance once it reaches a minimum threshold — typically $1,000 to $2,500, depending on the provider. You can choose from mutual funds, index funds, stocks, or bonds, just like in a brokerage account. Some providers offer a money market fund or savings option for smaller balances.

This makes an HSA a powerful retirement tool. If you're healthy and don't need the money for current medical expenses, you can invest it and let it grow for decades. Medical expenses in retirement are often substantial, and HSA funds can cover them tax-free. After age 65, you can withdraw money for any reason without penalty, though non-medical withdrawals are taxed as ordinary income — essentially turning it into a regular retirement account at that point.

Withdrawals, record-keeping, and what happens if you use it wrong

You withdraw money from an HSA by requesting a check, using a debit card (if your provider offers one), or submitting a reimbursement request. Keep receipts and documentation for every withdrawal. The IRS doesn't require you to submit receipts when you withdraw, but you must be able to prove the expense was may have access to if you're ever audited.

If you withdraw money for a non-may have access to expense, you pay income tax on that amount plus a 20 percent penalty — but only if you're under 65. After 65, the penalty goes away (though income tax still applies). If you withdraw money for a may have access to expense but don't have proper documentation, the IRS can reclassify it as non-may have access to and assess the penalty retroactively.

You cannot have an HSA and an FSA at the same time, with one exception: a limited-purpose FSA that covers only dental and vision expenses is allowed alongside an HSA. If you lose HSA may be able to access — for example, by switching to a non-high-deductible plan — you can keep the account and the money in it, but you cannot make new contributions.

Choosing an HSA provider and comparing accounts

Your employer may offer an HSA through a specific provider, or you may have a choice of providers. If you're self-employed or your employer doesn't offer one, you can open an HSA on your own through a bank, credit union, or investment firm. Compare providers on fees (some charge monthly maintenance fees, others don't), investment options, customer service, and ease of use.

Some providers charge per transaction or per investment trade; others offer unlimited transactions. Some have high minimum balances for investing; others let you invest small amounts. Read the fee schedule carefully — a provider that charges $3 per month costs $36 per year, which adds up if your balance is small. Many banks and brokerages offer HSAs with no monthly fees and low investment minimums.

Frequently Asked Questions

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

Yes. HSA funds can cover may have access to medical expenses for you, your spouse, and any dependent you claim on your tax return, regardless of whether they're on your health insurance plan. You don't need to be enrolled in the same plan as your family members.

What happens to my HSA if I change jobs or retire?

The account stays yours. You own it outright, so it doesn't disappear when you leave an employer. You can keep it with the same provider, move it to a new provider, or leave it invested and untouched. If your new job offers an HSA, you can contribute to yours and keep the old one open simultaneously.

Can I use my HSA debit card to buy groceries or gas?

No. HSA debit cards are restricted to may have access to medical expenses. If you try to use one for groceries, the transaction will be declined. Some cards allow you to use them at pharmacies and medical supply stores without a receipt, but most require documentation of the medical expense.

What if I don't use all my HSA money in a year?

It rolls over. Unlike a flexible spending account, there's no "use it or lose it" rule. Money in your HSA stays there indefinitely, earning interest or investment returns. You can accumulate years of contributions and use them whenever you need medical care.

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

Generally no, with two exceptions: you can use HSA funds to pay for COBRA continuation coverage or premiums while you're receiving unemployment benefits. You cannot use HSA money to pay premiums for your current health plan, Medicare, or supplemental insurance.