HSA money rolls forward every year — you do not lose it

Yes, your Health Savings Account balance carries over. Unlike a Flexible Spending Account (FSA), which has a use-it-or-lose-it rule, an HSA lets you keep the money year after year. Whatever you do not spend stays in your account and earns interest or investment returns, depending on how your HSA is set up.

This is one of the biggest differences between an HSA and an FSA. With an FSA, you typically forfeit any balance over $610 (the 2024 carryover limit) at the end of the plan year. An HSA has no such limit. Your balance can grow indefinitely as long as you keep the account open and remain enrolled in a high-deductible health plan.

Key Takeaways

  • HSA balances carry over to the next year with no limit on how much you can keep.
  • You must stay enrolled in a high-deductible health plan to contribute to an HSA, but you can keep the account open and use the balance even if you switch to a different health plan later.
  • Money in an HSA can be invested in stocks, bonds, or mutual funds once your balance reaches a certain threshold, usually $1,000 to $2,500 depending on your provider.
  • If you withdraw HSA money for non-medical expenses before age 65, you pay income tax plus a 20 percent penalty on the withdrawal amount.
  • After age 65, you can withdraw HSA money for any reason without penalty, though non-medical withdrawals are still taxed as income.

How the carryover works when you change jobs or health plans

Your HSA is yours to keep regardless of what happens with your job or insurance. If you leave your employer, change health plans, or retire, the money in your HSA stays with you. You own the account and the balance — not your employer or your insurance company.

However, there is one requirement: to contribute new money to an HSA, you must be enrolled in a high-deductible health plan. If you switch to a standard health plan or lose coverage, you can no longer add money to the account. But you can still use the existing balance to pay for medical expenses, and that balance will continue to grow if it is invested.

If you move your HSA to a different bank or investment provider, the balance transfers with you. Some people move their HSA when they change jobs if their new employer uses a different HSA provider, or when they want better investment options.

When your HSA balance can be invested

Many HSA providers let you invest your balance once it reaches a minimum threshold — typically $1,000 to $2,500, though this varies by provider. If you invest your HSA money, it can grow through stock market returns, which means your balance may be higher in future years than the amount you contributed.

This is different from a regular savings account, where your money sits and earns minimal interest. An invested HSA can act like a retirement account if you do not need the money for medical expenses right away. Some people use their HSA as a long-term savings tool for this reason.

You can usually choose how much of your balance to invest and how much to keep in cash for immediate medical expenses. If you need to withdraw money for a medical bill, you can sell investments and move the cash to your HSA checking account, though this may take a few business days.

What happens if you use your HSA after leaving a high-deductible plan

You can continue to use your HSA balance to pay for medical expenses even after you switch away from a high-deductible health plan. The money does not disappear, and there is no time limit on when you can use it.

This means you could contribute to an HSA for five years while enrolled in a high-deductible plan, then switch to a standard plan and spend that HSA balance over the next ten years. The account remains active and available as long as you do not close it.

The only restriction is that you cannot add new contributions once you are no longer on a high-deductible plan. But withdrawals for may have access to medical expenses are always tax-free, regardless of when you make them or what health plan you are currently on.

Penalties and taxes for non-medical withdrawals

If you withdraw HSA money for something other than a may have access to medical expense before age 65, you owe income tax on the withdrawal plus a 20 percent penalty. For example, if you withdraw $1,000 for a non-medical expense and you are in the 22 percent tax bracket, you would owe $420 in taxes and penalties combined.

may have access to medical expenses include doctor visits, prescriptions, dental work, vision care, and many other health-related costs. The IRS publishes a list of what counts. If you are unsure whether an expense qualifies, you can ask your HSA provider or check IRS Publication 969.

After age 65, the penalty goes away. You can withdraw HSA money for any reason without the 20 percent penalty. Non-medical withdrawals are still taxed as ordinary income, but the penalty no longer applies. This is why some people view an HSA as a retirement savings tool — after 65, it works like a traditional IRA.

Keeping records of your HSA spending

You are responsible for keeping receipts and documentation that your HSA withdrawals were for may have access to medical expenses. The IRS does not require you to submit receipts when you file taxes, but you must keep them in case of an audit. Your HSA provider may also ask for proof of a medical expense if you withdraw a large amount.

Some HSA providers offer tools to track your spending and categorize expenses. Others require you to keep your own records. Either way, save receipts and invoices for at least three to seven years, depending on your provider's policy and IRS guidance.

If you cannot prove that a withdrawal was for a may have access to medical expense, the IRS may treat it as a non-medical withdrawal and assess taxes and penalties retroactively, even if you withdrew the money years earlier.

How HSA carryover compares to FSA carryover

An FSA allows you to carry over up to $610 of unused balance into the next year (as of 2024; this amount changes annually). Anything above that is forfeited. An HSA has no carryover limit — you can keep your entire balance.

This makes an HSA much more flexible for long-term savings. If you have a healthy year and do not use much of your HSA, you can let the balance grow. With an FSA, you have to spend it or lose it, which is why many people use FSAs for predictable expenses like vision care or dental work.

Both accounts offer tax advantages for medical expenses, but the HSA's carryover feature makes it better suited for people who want to save for future medical costs or retirement.

Frequently Asked Questions

What happens to my HSA if I die?

Your HSA becomes part of your estate and passes to your beneficiary, usually your spouse or a family member you named when you opened the account. If your spouse inherits the HSA, they can treat it as their own and continue using it. If a non-spouse beneficiary inherits it, they must withdraw the balance and pay income tax on it, though the 20 percent penalty does not apply.

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

Yes, you can use your HSA to pay for may have access to medical expenses for your spouse and any dependents you claim on your tax return, even if they are not covered under your health plan. The money does not have to be used only for the person enrolled in the high-deductible plan.

Do I have to use my HSA by a certain date?

No. There is no deadline to use your HSA balance. You can keep the money in the account indefinitely and withdraw it whenever you have a may have access to medical expense, even decades later. After age 65, you can withdraw it for any reason without penalty.

What if my HSA provider goes out of business?

Your HSA is protected by federal law. If your provider closes, your balance is transferred to another HSA provider or returned to you. You do not lose the money. Contact your provider or the FDIC if you are unsure what happens to your specific account.

Can I have more than one HSA at the same time?

You can have multiple HSA accounts, but your total contributions across all accounts cannot exceed the annual limit set by the IRS. If you contribute more than the limit, you owe taxes and penalties on the excess. Most people keep one HSA to avoid this complication.