A Health Savings Account Lets You Set Aside Pre-Tax Money for Medical Costs
A Health Savings Account (HSA) is a savings account tied to a high-deductible health insurance plan. Money you put into it is not taxed, and you can withdraw it tax-free to pay for medical expenses. Unlike a flexible spending account (FSA), money you don't use in one year rolls over to the next year — you don't lose it.
To open an HSA, you must be enrolled in a high-deductible health plan (HDHP). Your employer may offer one, or you can buy one on your own through the health insurance marketplace. The account itself is separate from your insurance — you open it through a bank, credit union, or financial institution that offers HSAs.
The main advantage is the tax break. Money going in reduces your taxable income. Money coming out for medical costs is not taxed. If you invest the money instead of spending it right away, any growth is also tax-free as long as you eventually use it for medical expenses.
Key Takeaways
- You can only open an HSA if you have a high-deductible health plan; employer plans and marketplace plans both count.
- Contributions are made with pre-tax dollars, which lowers the amount of income tax you owe.
- Money rolls over year to year, so unused funds stay in the account and keep growing.
- Withdrawals for medical, dental, and vision expenses are tax-free, but non-medical withdrawals are taxed as income plus a 20 percent penalty.
- After age 65, you can withdraw money for any reason without the penalty, though non-medical withdrawals are still taxed as regular income.
How Much You Can Contribute Each Year
The IRS sets annual contribution limits, and they change each year. For 2024, the limit is $4,150 for individual coverage and $8,300 for family coverage. These limits apply to all HSAs you own combined — if you have two accounts, the total across both cannot exceed the limit.
You can contribute through payroll deduction if your employer offers it, or you can deposit money directly into your HSA account. If you contribute through payroll, the money comes out before taxes are calculated, which saves you both income tax and payroll tax (Social Security and Medicare tax). Direct contributions reduce your income tax but not payroll tax, unless you deduct them on your tax return.
If you turn 55, you can add an extra $1,000 per year as a catch-up contribution. This continues until you turn 65 or enroll in Medicare, whichever comes first.
What Medical Expenses You Can Pay From Your HSA
You can withdraw money tax-free for any expense the IRS classifies as a may have access to medical expense. This includes doctor visits, hospital stays, prescription drugs, dental work, vision care, and mental health treatment. It also covers medical equipment like wheelchairs, hearing aids, and blood pressure monitors.
Over-the-counter medications and supplies count too — bandages, pain relievers, allergy medicine, and antacids are all covered. You do not need a prescription for these items. Feminine hygiene products, sunscreen, and first-aid kits are also covered.
Some expenses do not count. Cosmetic surgery is not covered unless it is reconstructive after an injury or illness. Gym memberships and general wellness programs are not covered, though some preventive care programs may be. Teeth whitening is not covered, but root canals and fillings are. If you are unsure whether an expense qualifies, the IRS publishes a full list on its website, or you can ask your HSA provider.
How to Track and Withdraw Money From Your HSA
Your HSA provider gives you a debit card, checks, or online transfer options to access your money. Keep receipts for all medical expenses you pay from the account. You do not have to submit receipts to the IRS unless you are audited, but keeping them protects you if questions come up later.
Some people use their HSA as a long-term investment account rather than spending it immediately. You can invest the balance in mutual funds or other securities, just like a brokerage account. The growth is tax-free as long as you eventually use the money for medical costs. This strategy works well if you have enough income to pay medical bills out of pocket and let the HSA grow.
If you withdraw money for a non-medical expense before age 65, you owe income tax on the withdrawal plus a 20 percent penalty. After age 65, the penalty goes away, but you still owe income tax on non-medical withdrawals. At that point, the HSA works more like a traditional IRA — you can use it for anything, but you pay tax on what you take out.
What Happens to Your HSA if You Change Jobs or Insurance
Your HSA stays yours. If you leave your job, the account does not close and the money does not disappear. You keep the balance and can continue to use it for medical expenses. You can also keep contributing to it if you stay enrolled in a high-deductible plan through your new job or through the marketplace.
If you switch to a health plan that is not high-deductible, you can no longer make new contributions. However, you can still withdraw money from the account for medical expenses. The account sits there until you either spend the balance or re-enroll in an HDHP later.
If you move your HSA to a different bank or provider, it is called a trustee-to-trustee transfer. This move does not count as a withdrawal and does not trigger taxes or penalties. You can do this as many times as you want.
HSA vs. FSA vs. Regular Savings Account
| Feature | HSA | FSA | Regular Savings |
|---|---|---|---|
| Requires high-deductible plan | Yes | No | No |
| Money rolls over year to year | Yes | No (use it or lose it) | Yes |
| Pre-tax contributions | Yes | Yes | No |
| Tax-free growth if invested | Yes | No | No |
| Can withdraw for non-medical after 65 | Yes (with tax) | No | Yes |
Opening an HSA and Getting Started
If your employer offers a high-deductible health plan, you can usually open an HSA through the same benefits portal where you enroll in insurance. Your employer may partner with a specific HSA provider, or they may let you choose from several options.
If you buy your own high-deductible plan on the marketplace, you can open an HSA with any bank or financial institution that offers them. Common providers include major banks, credit unions, and online-only HSA companies. Compare fees, investment options, and customer service before choosing.
You will need to provide proof that you are enrolled in a high-deductible plan. Your insurance company sends you a form confirming your plan type, or you can request one. The HSA provider uses this to verify your may be able to access before opening the account.
Frequently Asked Questions
Can I have an HSA if my spouse has a regular health plan?
Yes, as long as you are enrolled in a high-deductible plan yourself. Your spouse's plan type does not affect your may be able to access. If you have family coverage on an HDHP, both of you can contribute to the same family HSA, or you can each open individual accounts if you prefer.
What happens to my HSA if I turn 65 and enroll in Medicare?
You can no longer make contributions once you enroll in Medicare. However, you keep the money in the account and can withdraw it for medical expenses for the rest of your life. After 65, non-medical withdrawals are taxed as income but no longer subject to the 20 percent penalty.
Can I use my HSA to pay for my spouse's or child's medical bills?
Yes. As long as the person is your dependent for tax purposes, you can pay their medical expenses from your HSA tax-free. You do not need to be on the same health plan.
Do I lose my HSA money if I don't use it by the end of the year?
No. Unlike an FSA, HSA money rolls over automatically. You can let it sit for years and use it whenever you need it. There is no deadline to spend it, and no "use it or lose it" rule.
Can I withdraw money from my HSA to pay my health insurance premium?
You cannot use HSA money to pay your regular monthly insurance premium. However, you can use it to pay premiums for COBRA coverage, long-term care insurance, or health insurance while you are unemployed. Dental and vision insurance premiums also count as covered expenses.