A health care savings account lets you set aside pre-tax money to pay for medical expenses that your insurance doesn't cover.
The most common type is a Health Savings Account (HSA), which pairs with a high-deductible health insurance plan. You contribute money before taxes are taken out of your paycheck, use it to pay for doctor visits, prescriptions, dental work, and other medical costs, and any money left over rolls into the next year. The account stays with you even if you change jobs or insurance plans.
A Flexible Spending Account (FSA) works similarly but is tied to your employer and has stricter rules — money you don't spend by the end of the year is usually forfeited. A Dependent Care FSA is a separate account for child care and elder care expenses only.
The main reason people use these accounts is the tax savings. If you put $3,000 into an HSA and spend it on medical care, you avoid paying income tax and payroll tax on that $3,000. Over time, that adds up.
Key Takeaways
- Health Savings Accounts require enrollment in a high-deductible health plan and let you save money pre-tax for medical expenses, with unused funds rolling over year to year.
- Flexible Spending Accounts are employer-sponsored, cover medical or dependent care expenses, and typically forfeit unused money at year-end unless your employer offers a carryover option.
- Money in these accounts can pay for doctor visits, prescriptions, dental, vision, medical equipment, and other costs your insurance doesn't cover or covers only partially.
- You access the money through a debit card, reimbursement request, or direct payment to providers, depending on how your account is set up.
- Withdrawals for non-medical expenses before age 65 trigger income tax plus a 20 percent penalty; after 65, you pay only income tax.
Who can open a Health Savings Account and when
You can open an HSA only if you are enrolled in a high-deductible health plan (HDHP). For 2024, that means a plan with a deductible of at least $1,600 for individual coverage or $3,200 for family coverage. You cannot be covered by any other health insurance at the same time, and you cannot be claimed as a dependent on someone else's tax return.
You can open an HSA through your employer if they offer one, or you can open one on your own through a bank or financial institution. The enrollment window is usually during your employer's open enrollment period, or anytime during the year if you are self-employed or buying insurance on your own.
If you turn 65 or become enrolled in Medicare, you can no longer contribute new money to an HSA, though you can still withdraw money that is already there for medical expenses.
Contribution limits and how much you can save
The IRS sets annual contribution limits that 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 add an extra $1,000 per year as a catch-up contribution.
Your employer may contribute to your HSA as well — this counts toward the limit but does not reduce your tax savings. If both you and your employer contribute, the combined total cannot exceed the annual limit.
Money you do not spend stays in the account and earns interest or investment returns, depending on how your account is set up. Unlike FSAs, there is no "use it or lose it" rule for HSAs, so you can let the balance grow over many years.
What medical expenses you can pay for with HSA or FSA money
Both HSAs and FSAs cover a broad range of medical costs: doctor visits, hospital stays, surgery, prescription medications, dental work, vision care, hearing aids, mental health treatment, and physical therapy. You can also use the money for medical equipment like crutches, wheelchairs, blood pressure monitors, and glucose meters.
Some expenses are less obvious but still covered. You can pay for acupuncture, chiropractic care, weight loss programs prescribed by a doctor, and fertility treatments. You can also use HSA or FSA money to pay your insurance premiums if you are unemployed and receiving unemployment benefits, or to pay for COBRA continuation coverage.
Over-the-counter medications like pain relievers and cold medicine are covered only if you have a prescription from a doctor. Cosmetic procedures, gym memberships, and vitamins are not covered unless a doctor prescribes them for a specific medical condition.
How to use the money when you need it
Most HSAs and FSAs come with a debit card that you can use at pharmacies, doctor offices, and hospitals. The card is linked to your account, and the transaction is deducted automatically. Keep your receipt — you may need it later to prove the expense was medical.
If you pay out of pocket, you can request reimbursement from your account administrator. You will need to submit a claim form along with a receipt or explanation of benefits from your provider. Reimbursement usually takes one to two weeks.
Some employers allow you to pay your medical bills directly from your HSA or FSA through an online portal or mobile app. Check with your account administrator to see what payment methods are available to you.
The difference between HSAs and FSAs
| Feature | Health Savings Account (HSA) | Flexible Spending Account (FSA) |
|---|---|---|
| Requires high-deductible plan | Yes | No |
| Unused money rolls over | Yes, indefinitely | No, usually forfeited (some employers allow $610 carryover) |
| Stays with you if you change jobs | Yes | No, tied to employer |
| Can invest the money | Yes | Usually no |
| 2024 contribution limit (individual) | $4,150 | $3,300 |
| Can withdraw for non-medical expenses | Yes, with tax penalty | Yes, with tax penalty |
What happens if you withdraw money for non-medical expenses
If you take money out of your HSA or FSA for something that is not a medical expense, you will owe income tax on that amount plus a 20 percent penalty. For example, if you withdraw $1,000 for a vacation, you pay income tax on the $1,000 plus $200 in penalties.
The penalty applies only to HSAs. FSA withdrawals for non-medical expenses are taxed as income but do not carry the additional 20 percent penalty, though your employer may have other consequences for misuse.
After you turn 65, the 20 percent HSA penalty goes away. You can withdraw money for any reason and pay only income tax on non-medical withdrawals. This makes HSAs a useful retirement savings tool if you have built up a large balance.
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 to pay for 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 leave my job?
Your HSA stays with you. You own the account, not your employer. You can keep the money there, move it to a different financial institution, or continue using it to pay for medical expenses. Your employer's FSA, however, ends when you leave — you typically have 60 to 90 days to spend the remaining balance or forfeit it.
Can I contribute to both an HSA and an FSA at the same time?
No. If you have an HSA, you cannot have a regular medical FSA. You can have an HSA and a Dependent Care FSA at the same time, since they cover different types of expenses.
Do I have to spend my HSA money by the end of the year?
No. HSA money rolls over indefinitely, so you can let it accumulate. FSA money typically does not roll over — your employer may allow you to carry forward up to $610 to the next year, but any amount beyond that is forfeited.
Can I use HSA money to pay for health insurance premiums?
Yes, but only in specific situations: if you are receiving unemployment benefits, if you are paying for COBRA continuation coverage, or if you are paying for Medicare premiums after you turn 65. You cannot use HSA money to pay for regular health insurance premiums while you are employed.