A health savings account is a tax-advantaged bank account you own, paired with a high-deductible health insurance plan

A health savings account (HSA) is a savings account that lets you set aside pre-tax money to pay for medical expenses. You control the account — it belongs to you, not your employer or insurance company — and the money stays in it year to year. Unlike a flexible spending account (FSA), which you lose if you don't spend the balance by the end of the year, an HSA rolls over and grows.

To open an HSA, you must be enrolled in a high-deductible health plan (HDHP). That's an insurance plan with a higher deductible than standard plans — meaning you pay more out of pocket before insurance kicks in — but lower monthly premiums. The HSA is designed to help you cover those out-of-pocket costs with pre-tax dollars.

You contribute money to the HSA yourself, or your employer can contribute on your behalf. The money you put in reduces your taxable income for the year, so you pay no federal income tax on it. When you withdraw money to pay for may have access to medical expenses, you pay no tax on that withdrawal either. If you withdraw for non-medical reasons, you pay income tax plus a 20% penalty — unless you're over 65, in which case the penalty goes away (though income tax still applies).

Key Takeaways

  • An HSA is your own account that you control; money rolls over year to year and grows if you don't spend it.
  • You must be enrolled in a high-deductible health plan to open or contribute to an HSA.
  • Contributions reduce your taxable income, and withdrawals for may have access to medical expenses are tax-free.
  • may have access to expenses include deductibles, copays, coinsurance, prescriptions, dental work, vision care, and some medical equipment and supplies.
  • If you withdraw for non-medical reasons before age 65, you owe income tax plus a 20% penalty on the amount withdrawn.

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 if you have individual coverage and $8,300 if you have family coverage. If you're 55 or older, you can contribute an additional $1,000 per year (called a catch-up contribution).

You can contribute the full year's limit at any time during the year, or spread contributions across months. If you enroll in an HDHP partway through the year, you can still contribute a full year's worth if you stay enrolled through December 31 and the following March 31 (this is called the testing period). If you drop the HDHP before March 31, you have to pay back any excess contributions and owe taxes on the earnings.

Your employer can also contribute to your HSA. If they do, that money counts toward the annual limit. For example, if your employer contributes $2,000 and you contribute $2,000, you've hit the $4,150 individual limit and cannot contribute more that year.

What counts as a may have access to medical expense

may have access to expenses are medical, dental, or vision costs that you would otherwise pay out of pocket. They include your insurance deductible, copays, coinsurance, and any amount your insurance doesn't cover. Prescription medications and over-the-counter drugs (with a prescription from your doctor) count. Dental work — fillings, root canals, crowns, orthodontia — qualifies. Vision care, including eye exams, glasses, and contact lenses, qualifies.

Medical equipment and supplies also count: blood pressure monitors, glucose monitors, hearing aids, crutches, wheelchairs, and bandages. Mental health treatment, physical therapy, and chiropractic care count if your insurance covers them or if you're paying out of pocket. Fertility treatments, including in vitro fertilization, are may have access to expenses.

Expenses that do not count include cosmetic surgery (unless it's reconstructive after an injury or illness), gym memberships, vitamins and supplements (unless prescribed by a doctor for a specific condition), and over-the-counter medications without a prescription. Health insurance premiums themselves do not count, except for COBRA continuation coverage, long-term care insurance, and health insurance you buy while unemployed and receiving unemployment benefits.

How to use your HSA to pay for care

When you open an HSA, your bank or HSA provider gives you a debit card linked to the account. You can use this card to pay for may have access to expenses at pharmacies, doctor's offices, and hospitals. The transaction is deducted directly from your HSA balance.

You can also pay out of pocket and then reimburse yourself from the HSA later. This is useful if you want to let the HSA grow and invest the money. You keep receipts and documentation of the expense, and you can withdraw the money anytime — there's no time limit on reimbursement. The IRS does not require you to submit receipts to your HSA provider, but you must keep them for your own records in case of an audit.

Many HSA providers let you invest the balance in mutual funds or other investments, similar to a 401(k). If you invest the money and it grows, the growth is tax-free as long as you use it for may have access to expenses. If you withdraw for non-medical reasons, you owe tax on the growth plus the 20% penalty.

What happens to your HSA if you change jobs or insurance

Your HSA stays with you. If you leave your job, the account remains yours — your employer cannot take it back. You keep the balance and can continue to use it for may have access to expenses. If your new employer offers an HSA, you can roll your old HSA into the new one, or keep both accounts open (though most people consolidate into one).

If you drop your HDHP and enroll in a different type of insurance plan, you can no longer contribute to the HSA. However, you can still withdraw money from the account for may have access to expenses. Once you re-enroll in an HDHP, you can resume contributions.

If you become may be able to access for Medicare, you can no longer contribute to an HSA. You can still withdraw for may have access to expenses, and Medicare premiums (Part A, Part B, and Part D) count as may have access to expenses. After age 65, if you withdraw for non-medical reasons, you owe income tax but not the 20% penalty.

HSA vs. FSA: the main differences

Both HSAs and FSAs let you set aside pre-tax money for medical expenses, but they work differently. An FSA is tied to your job — if you leave, the account closes. An HSA is yours to keep. An FSA has a "use it or lose it" rule: money left over at the end of the year is forfeited (though some plans allow a small carryover or grace period). An HSA rolls over indefinitely.

An FSA does not require a high-deductible health plan; you can have any insurance and still open an FSA through your employer. An HSA requires an HDHP. An FSA contribution limit is lower — $3,200 for 2024 — compared to the HSA limit of $4,150 for individual coverage. An FSA cannot be invested; the money sits in the account. An HSA can be invested in mutual funds.

Some employers offer both. If you have access to both, you can contribute to an FSA and an HSA in the same year, but the combined medical expenses you reimburse from both accounts cannot exceed your actual expenses. You cannot use both to double-pay for the same doctor visit.

Frequently Asked Questions

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

Yes, if you have family coverage. The HSA can pay for may have access to expenses for you, your spouse, and any dependent children, even if they are not on your insurance plan. You do not need to be married to use the HSA for a domestic partner's expenses, but the person must be a tax dependent.

What happens if I withdraw money for a non-medical expense?

You owe federal income tax on the amount withdrawn, plus a 20% penalty. For example, if you withdraw $1,000 for a non-medical reason and you're in the 22% tax bracket, you owe $220 in income tax plus $200 in penalty, for a total of $420. After age 65, the penalty is waived but income tax still applies.

Can I carry over unused HSA money to the next year?

Yes. Unlike an FSA, an HSA has no annual spending requirement. Money rolls over indefinitely, and you can let it grow and invest it. There is no deadline to spend the balance, and you can withdraw it anytime for may have access to expenses.

Do I need receipts to withdraw from my HSA?

Your HSA provider does not require you to submit receipts when you withdraw. However, you must keep receipts and documentation for your own records. The IRS can audit your HSA and ask you to prove that withdrawals were for may have access to expenses.

Can I open an HSA if my employer does not offer one?

Yes. You can open an individual HSA through a bank or financial institution as long as you are enrolled in an HDHP. You do not need your employer to offer an HSA. Individual HSAs work the same way as employer-sponsored ones, and you can contribute up to the annual limit.