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

An HSA (Health Savings Account) is a savings account you can open if you have a high-deductible health insurance plan. Money you put into it reduces your taxable income, grows tax-free, and you can withdraw it tax-free to pay medical expenses. Unlike a flexible spending account (FSA), the money rolls over year to year — you don't lose what you don't spend.

As a homeowner, an HSA matters because it's one of the few ways to set aside pre-tax money for health costs without losing it, which frees up cash flow for mortgage payments and home maintenance. It also counts as an asset when you apply for a mortgage, though lenders treat it differently than a regular savings account.

Key Takeaways

  • You can only open an HSA if your health insurance plan has a deductible of at least $1,500 for individual coverage or $3,000 for family coverage (these minimums change yearly).
  • Money you contribute is deductible from your income taxes, grows without being taxed, and comes out tax-free when used for medical bills, prescriptions, or dental and vision care.
  • Unlike FSAs, HSA funds don't expire at the end of the year — they accumulate and can be used decades later or even in retirement.
  • When applying for a mortgage, lenders see HSA balances as liquid assets, which can strengthen your application by showing reserves, but the account itself doesn't affect your debt-to-income ratio.

Who can open an HSA and what are the income limits

You can open an HSA only if you're enrolled in a high-deductible health plan (HDHP). The IRS sets the minimum deductible each year — for 2024, that's $1,500 for self-only coverage or $3,000 for family coverage. You cannot have other health coverage (like Medicare, Medicaid, or a spouse's plan) at the same time, with narrow exceptions for specific plans like dental-only or vision-only coverage.

There are no income limits to open or contribute to an HSA. Anyone with an HDHP can use one, regardless of how much they earn. However, contribution limits do exist: for 2024, you can contribute up to $4,150 for self-only 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.

How contributions, growth, and withdrawals work

You can contribute to your HSA in three ways: through payroll deduction (if your employer offers it), by depositing money directly to the account, or by making a contribution when you file taxes. Payroll deduction is the most common because the money comes out before taxes are calculated, lowering your taxable income immediately.

Money in the account earns interest or investment returns depending on how you hold it. Some HSAs function like savings accounts with minimal interest; others let you invest the balance in mutual funds or stocks, similar to a retirement account. Any growth is tax-free. When you withdraw money to pay for may have access to medical expenses — doctor visits, prescriptions, dental work, vision care, hearing aids, and many other health costs — that withdrawal is also tax-free. You keep receipts as proof in case the IRS asks.

If you withdraw money for non-medical expenses before age 65, you owe income tax on the withdrawal plus a 20% penalty. After age 65, you can withdraw for any reason without the penalty, though you'll owe income tax on non-medical withdrawals (like a traditional IRA). This makes an HSA a powerful retirement savings tool if you don't need the money for medical bills.

How lenders view HSA balances when you apply for a mortgage

Mortgage lenders see your HSA balance as a liquid asset — money you can access quickly. When you list assets on a mortgage application, lenders add them to your financial picture to assess your overall stability and reserves. A larger HSA balance can help your application by showing you have money set aside for emergencies, which reduces the perceived risk that you'll default on the mortgage.

However, the HSA balance does not reduce your debt-to-income ratio, which is the main number lenders use to decide how much you can borrow. Your debt-to-income ratio is calculated by dividing your monthly debt payments by your gross monthly income. Assets like an HSA sit separately in the underwriting process. Some lenders will count a portion of your HSA (often 50% or a set dollar amount) as additional income or reserves if your application is borderline, but this varies by lender and loan program.

HSA vs. FSA: why the difference matters for homeowners

A Flexible Spending Account (FSA) is similar to an HSA but works under "use it or lose it" rules. Money you don't spend by the end of the plan year (usually December 31) is forfeited, though some employers allow a grace period or a small carryover. This makes FSAs riskier for budgeting because you have to predict your medical expenses accurately or waste money.

An HSA has no expiration date. You can accumulate funds year after year, which is especially valuable for homeowners managing multiple financial obligations. If you have a high-deductible plan and can afford to contribute, an HSA is almost always the better choice because you keep the money whether you use it or not. You also own the account — if you change jobs or retire, the HSA goes with you, whereas an FSA is tied to your employer and ends when you leave.

What medical expenses may have access to for tax-free HSA withdrawals

The IRS maintains a long list of may have access to medical expenses. Common ones include doctor and dentist visits, prescription medications, eyeglasses and contact lenses, hearing aids, mental health counseling, and physical therapy. You can also use HSA funds for over-the-counter items like pain relievers, allergy medicine, and first-aid supplies if you have a prescription or a doctor's recommendation.

Some expenses homeowners don't always realize may have access to include long-term care insurance premiums, certain medical equipment (like blood pressure monitors or glucose meters), and even some home modifications if they're medically necessary (like a wheelchair ramp or grab bars). Cosmetic procedures, gym memberships, and vitamins don't may have access to unless prescribed by a doctor for a specific medical condition. When in doubt, keep the receipt and check the IRS publication 502, which lists all may have access to expenses.

How to open an HSA and what to do with the money

To open an HSA, you first need to enroll in a high-deductible health plan through your employer, the healthcare marketplace, or a private insurer. Once you're enrolled, you can open an HSA through a bank, credit union, or investment firm. Many employers offer HSAs directly through payroll, which is the easiest route because contributions happen automatically and reduce your taxable income before your paycheck is calculated.

If you're self-employed or your employer doesn't offer an HSA, you can open one independently through providers like Fidelity, Lively, HealthEquity, or your bank. You'll need to provide proof of your HDHP enrollment. After opening the account, decide whether to keep the balance in a savings vehicle (earning minimal interest) or invest it. For money you plan to use within a few years, a savings option is safer. For long-term accumulation, especially if you're healthy and don't expect major medical expenses, investing can grow your balance significantly.

Frequently Asked Questions

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

Yes. HSA funds can be used for may have access to medical expenses of you, your spouse, and any dependent you claim on your tax return, regardless of whether they're covered under your health plan. You don't need to be on the same insurance policy.

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

Your HSA stays with you. It's your personal account, not tied to your employer. You can continue contributing if you remain enrolled in an HDHP, or you can stop contributing and just withdraw for medical expenses. The money is yours to keep.

Can I withdraw HSA money to pay for home modifications for a medical reason?

Yes, if the modification is medically necessary. For example, installing a wheelchair ramp, grab bars, or widening doorways for accessibility can may have access to. You'll need documentation from a doctor stating the medical necessity. Keep receipts and the doctor's note in case the IRS asks.

Do I have to spend my HSA money by a certain age?

No age limit exists for spending HSA funds on medical expenses. After age 65, you can withdraw for any reason without the 20% penalty (though non-medical withdrawals are taxed as income). Many people use HSAs as retirement savings vehicles for this reason.

Does my HSA count as income when I apply for a mortgage?

No. The HSA balance is counted as an asset, not income. It can strengthen your application by showing reserves, but it doesn't increase your reported income or change your debt-to-income ratio, which is what lenders primarily use to decide how much you can borrow.