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 bank account you own that holds money specifically for medical expenses. Unlike a flexible spending account (FSA) that your employer controls, an HSA belongs to you — you can take it with you if you change jobs, and money you don't spend rolls over year to year. The account earns interest or investment returns, and withdrawals for may have access to medical costs are tax-free.

To open an HSA, you must be enrolled in a high-deductible health plan (HDHP) — a type of health insurance with lower monthly premiums but higher out-of-pocket costs before insurance kicks in. The IRS sets the minimum deductible each year; for 2024, it's $1,600 for individual coverage and $3,200 for family coverage. You cannot have other health coverage (with limited exceptions) or be claimed as a dependent on someone else's tax return.

You contribute money to the account yourself, your employer can contribute on your behalf, or both. The money you put in reduces your taxable income for that year, and you can withdraw it tax-free whenever you need it for medical expenses. This triple tax advantage — deductible contributions, tax-free growth, and tax-free withdrawals for medical costs — is what makes an HSA different from a regular savings account.

Key Takeaways

  • An HSA is your personal savings account for medical expenses, and you keep it even if you change jobs or health insurance plans.
  • You must be enrolled in a high-deductible health plan to open or contribute to an HSA, and you cannot have other health coverage at the same time.
  • Money you contribute is tax-deductible, grows tax-free, and can be withdrawn tax-free for may have access to medical expenses like deductibles, copays, prescriptions, and dental work.
  • Unused HSA money rolls over each year with no "use it or lose it" deadline, unlike flexible spending accounts.
  • After age 65, you can withdraw HSA money for any reason without penalty, though non-medical withdrawals are taxed as income.

What medical expenses you can pay for with HSA money

You can withdraw HSA funds tax-free for any expense the IRS classifies as a may have access to medical expense. This includes your health insurance deductible, copays, and coinsurance — the percentage of a bill you pay after insurance. It also covers prescription medications, over-the-counter drugs (with a doctor's prescription), dental work, vision care, mental health treatment, and medical equipment like crutches or hearing aids.

Some expenses people assume are covered are not. Cosmetic procedures, gym memberships, and vitamins (unless prescribed by a doctor for a specific condition) do not may have access to. Long-term care insurance premiums are covered, but life insurance and disability insurance are not. If you are unsure whether a specific expense qualifies, the IRS publishes a full list, and your HSA provider can also answer questions about particular items.

You do not have to use HSA money immediately. You can pay a medical bill out of pocket and save your HSA receipts, then reimburse yourself from the account months or years later. This strategy lets your HSA grow like an investment account while you cover current medical costs with other money.

How much you can contribute each year

The IRS sets annual contribution limits that change slightly 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 add an extra $1,000 per year (called a catch-up contribution). These limits apply to the total of all contributions — yours plus your employer's — so if your employer contributes $1,000, you can only add $3,150 more.

You can contribute to an HSA only during the months you are enrolled in a high-deductible plan. If you switch to a different type of insurance mid-year, you can only contribute a prorated amount for the months you were covered. If you enroll in Medicare, you can no longer contribute to an HSA, though you can still withdraw money for medical expenses.

Contributions are made through payroll deduction (if your employer offers it), by direct deposit to the HSA bank account, or by check. You have until the tax filing deadline (usually April 15) of the following year to make contributions for the prior year.

How HSA money grows and where it is held

An HSA is held at a bank, credit union, or investment company — not with your health insurance company. Your employer may offer a specific HSA provider, or you can open one independently. Some HSAs work like savings accounts and earn a small interest rate. Others let you invest the money in mutual funds or stocks, similar to a retirement account, so your balance can grow significantly over time.

If you invest HSA money, you take on investment risk — the value can go down as well as up. Many people keep a portion in a savings account for near-term medical expenses and invest the rest for long-term growth. There are no required withdrawals during your working years, so you can let the money accumulate if your health expenses are low.

HSA providers charge fees — some charge monthly maintenance fees, others charge per transaction or per investment trade. Compare providers before opening an account, because fees can eat into your balance over time, especially if you have a small account.

What happens to HSA money if you change jobs or insurance

Your HSA stays with you. If you leave your job, the account does not close and the money does not go back to your employer. You own it outright. You can transfer the account to a new HSA provider if you want, or leave it where it is. Some people keep an old HSA open even after opening a new one with a new employer, though managing multiple accounts can be complicated.

If you switch to a health plan that is not a high-deductible plan, you can no longer contribute new money to the HSA. However, you can still withdraw money for medical expenses. Once you re-enroll in a high-deductible plan, you can start contributing again.

If you move to Medicare, Medicaid, or the Veterans Health Administration, you lose HSA may be able to access and cannot contribute. You can still use the money for medical expenses, including Medicare premiums (though not all types), but you cannot add new funds.

Penalties and taxes for non-medical withdrawals

If you withdraw HSA 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% penalty. For example, if you withdraw $1,000 for a non-medical expense and you are in the 22% tax bracket, you would owe $220 in taxes plus $200 in penalty — a total of $420. This makes HSA withdrawals for non-medical reasons expensive and should be avoided.

After age 65, the penalty goes away. You can withdraw HSA money for any reason without the 20% penalty, though you still owe income tax on non-medical withdrawals. This makes an HSA function like a traditional retirement account after 65 — you can use it for medical expenses tax-free, or for anything else with only income tax owed.

If you withdraw money by mistake or for an expense you later realize does not may have access to, some HSA providers allow you to put the money back within a certain timeframe. Check your provider's rules, because this option is not may provide.

HSA vs. FSA: Key differences

A flexible spending account (FSA) is another tax-advantaged account for medical expenses, but it works differently. An FSA is run by your employer, not owned by you — if you leave your job, the account closes. FSA money does not roll over; anything you do not spend by the end of the year is forfeited (though employers can allow a grace period or a small carryover). FSAs have lower contribution limits than HSAs and do not earn interest or investment returns.

The main advantage of an FSA is that you can use it with any health insurance plan, not just a high-deductible plan. If you have a low-deductible plan through your employer and predictable medical expenses, an FSA may be simpler. If you have a high-deductible plan and want to build long-term savings for medical costs, an HSA is usually the better choice because the money is yours to keep and invest.

Frequently Asked Questions

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

Yes, if your spouse is covered under your family health plan. You can also use HSA money for the medical expenses of your spouse or dependents even if they are not on your insurance plan, as long as you claim them as dependents on your tax return.

What happens to my HSA if I die?

The account becomes part of your estate. If your spouse is the beneficiary, they can treat it as their own HSA and continue using it for medical expenses. If a non-spouse inherits it, they owe income tax on the full balance, though they can still withdraw it for the deceased person's medical expenses without the 20% penalty.

Can I have both an HSA and an FSA at the same time?

Generally no — you cannot have an HSA and a traditional FSA simultaneously. However, some employers offer a limited-purpose FSA that covers only dental and vision expenses, which you can use alongside an HSA. Check with your employer's benefits team about what is available.

Do I have to spend my HSA money within a certain time?

No. Unlike an FSA, HSA money does not expire. You can let it accumulate for years and withdraw it whenever you need it for medical expenses. This makes it useful for saving toward future healthcare costs like retirement medical expenses.

Can I withdraw HSA money to pay off medical debt from years ago?

Yes. You can reimburse yourself for any may have access to medical expense you paid out of pocket, even if it happened years ago, as long as you have documentation. Many people use this strategy to let their HSA grow while paying current medical bills with other money.