What a Medical Savings Account Is and Who Can Open One

A medical savings account is a tax-advantaged account that lets you set aside money specifically for healthcare costs. The money you put in is not taxed, and when you withdraw it to pay for medical expenses, those withdrawals are also tax-free. You keep the account even if you change jobs or retire.

There are three main types. A Health Savings Account (HSA) requires you to be enrolled in a high-deductible health plan (HDHP) through your employer or the individual market. A Flexible Spending Account (FSA) is offered only through an employer and has an annual spending limit. A Dependent Care FSA covers childcare and adult dependent care expenses only, also through an employer.

The rules for who can open each type differ. HSAs are available to anyone with an HDHP and no other health coverage except specific exceptions like dental or vision plans. FSAs are employer-only and do not require an HDHP. Dependent Care FSAs are also employer-only and have separate income limits in some states.

Key Takeaways

  • An HSA requires enrollment in a high-deductible health plan, but an FSA does not and is offered through your employer's benefits package.
  • HSA contributions roll over year to year and you own the account; FSA money is "use it or lose it" and the employer owns the account.
  • For an HSA, you open an account with a bank or financial institution after confirming your HDHP coverage; for an FSA, you enroll during your employer's open enrollment period.
  • Contribution limits for 2024 are $4,150 for individual HSA coverage and $8,300 for family coverage; FSA limits are $3,300 per person per year.
  • You can use these accounts to pay for doctor visits, prescriptions, dental work, vision care, and many other medical expenses, but not for insurance premiums or over-the-counter items without a prescription.

How to Open an HSA

Before you open an HSA, confirm that your health plan qualifies as a high-deductible health plan. Your employer or insurance company will tell you this directly on your plan documents or benefits summary. The IRS sets the minimum deductible each year—for 2024, it is $1,600 for individual coverage and $3,200 for family coverage. Your plan must also have an out-of-pocket maximum that does not exceed $8,050 for individual coverage or $16,100 for family coverage.

Once you have confirmed your HDHP coverage, you choose a financial institution to hold your HSA. Banks, credit unions, and investment firms all offer HSAs. You can search for HSA providers through the HealthEquity or Lively platforms, or contact your bank directly. Some employers offer a default HSA provider, but you are not required to use it—you can open an account anywhere.

To open the account, you will need your Social Security number, proof of HDHP coverage (usually your insurance card or plan documents), and a government-issued ID. Most providers let you open an account online in 10 to 15 minutes. Once the account is open, you can contribute money immediately and begin using a debit card or reimbursement requests to pay for medical expenses.

If your employer offers an HSA with payroll deduction, you can have contributions taken directly from your paycheck before taxes. This is the simplest route because the money never touches your taxable income. If you open an HSA on your own, you contribute after-tax dollars and claim a deduction on your tax return.

How to Enroll in an FSA Through Your Employer

FSAs are set up only through your employer's benefits plan. You cannot open one on your own. During your company's open enrollment period—usually in October or November for coverage starting January 1—you will see FSA options in your benefits package. You elect how much to contribute for the year, up to the annual limit of $3,300 per person in 2024.

The enrollment process is straightforward: log into your employer's benefits portal, select the FSA option, and enter your desired contribution amount. The money is deducted from your paycheck in equal amounts throughout the year, before taxes are taken out. Your employer then funds the account with your contributions.

Once enrolled, your employer will issue you a debit card or provide instructions for submitting receipts for reimbursement. Some employers use a third-party administrator like WageWorks, Conduent, or Fidelity to manage the account. You will receive login credentials and can track your balance online.

If you miss open enrollment, you cannot enroll in an FSA until the next open enrollment period unless you have a may have access to life event—marriage, birth of a child, loss of other health coverage, or a significant change in your employer's plan. Contact your HR department to report the event and request a special enrollment window.

Contribution Limits and Tax Advantages

For 2024, HSA contribution limits are $4,150 for individual coverage and $8,300 for family coverage. If you are age 55 or older, you can contribute an additional $1,000 per year as a catch-up contribution. These limits change annually, so check the IRS website or your provider each January.

FSA contribution limits are $3,300 per person per year in 2024. This limit applies to the employee's contribution only; employers can add money on top of that. Dependent Care FSAs have a separate limit of $5,000 per household per year if you are married and filing jointly, or $2,500 if you are single or married filing separately.

The tax advantage works the same way for both: money you contribute is not subject to federal income tax, Social Security tax, or Medicare tax. If you earn $60,000 per year and contribute $3,300 to an FSA, you pay income tax on only $56,700. Over a year, this can save you $800 to $1,200 depending on your tax bracket.

HSA money that you do not spend in a given year stays in your account and earns interest or investment returns. FSA money does not roll over—if you do not spend it by December 31, you lose it. Some employers offer a grace period of up to 2.5 months into the next year, or a carryover of up to $640, but this is optional and not may provide.

What You Can and Cannot Pay For

Both HSAs and FSAs cover a wide range of medical expenses. You can use the money for doctor visits, hospital stays, prescription medications, dental work, vision care, hearing aids, mental health treatment, and physical therapy. You can also pay for over-the-counter items like pain relievers, cold medicine, and bandages—but only if you have a prescription from your doctor.

You cannot use HSA or FSA money for health insurance premiums, except in specific cases. You can pay for COBRA continuation coverage, Medicare premiums (Part B, Part D, and supplemental insurance), and long-term care insurance premiums using HSA funds. You cannot use FSA money for any insurance premiums. You also cannot use either account to pay for cosmetic procedures, gym memberships, or vitamins unless they are prescribed by a doctor for a specific medical condition.

Keep receipts and documentation for all medical expenses you pay for with these accounts. If you are audited, the IRS may ask you to prove that the expense was medical and that you did not already receive reimbursement from insurance. For HSAs, you do not have to submit receipts to your provider, but you must keep them for your records. For FSAs, your administrator may require you to submit receipts before approving reimbursement.

Tracking Your Balance and Using Your Account

Most HSA and FSA providers give you online access to your account balance, transaction history, and remaining funds. Log into your provider's website or app to check how much you have contributed, how much you have spent, and how much is available. This is especially important for FSAs because you need to track whether you will spend all your money before the year ends.

When you incur a medical expense, you have two options: use your debit card at the point of service, or pay out of pocket and request reimbursement later. If you use the debit card, the transaction is deducted immediately. If you request reimbursement, you submit a receipt to your provider and they send you a check or direct deposit within 5 to 10 business days.

Some providers require you to submit a receipt even when you use the debit card, especially for large purchases. This is called substantiation. If you do not submit the receipt within 60 days, your provider may freeze your card or deny the transaction. Check your provider's rules when you open the account so you know what documentation they need.

If you change jobs, your FSA ends immediately—you cannot take it with you. You have 60 days to submit any remaining claims for expenses you incurred while enrolled. Your HSA, by contrast, stays with you. You can transfer it to a new provider, leave it where it is, or roll it into another HSA. The account is yours to keep for life.

Common Mistakes to Avoid

The biggest FSA mistake is overestimating how much you will spend and losing money at year-end. If you contribute $3,300 and spend only $2,500, you forfeit $800. To avoid this, track your medical spending from the previous year and be conservative with your estimate. If you are unsure, contribute less—you can always adjust during the next open enrollment.

For HSAs, a common error is using the account for non-medical expenses. If you withdraw money for something that is not a may have access to medical expense, you owe income tax on that amount plus a 20 percent penalty. The exception is after age 65, when you can withdraw money for any reason without the penalty—though you still owe income tax on non-medical withdrawals.

Another mistake is not keeping receipts. The IRS does not require you to submit receipts when you open an HSA, but if you are audited years later, you need proof that the expense was medical. Keep receipts for at least three to seven years. For FSAs, keep receipts until your employer confirms that your claim was processed.

Do not assume your employer's default HSA or FSA provider is the best option. Compare fees, investment options (for HSAs), and customer service before enrolling. Some providers charge monthly maintenance fees or high investment expense ratios that eat into your savings over time.

Frequently Asked Questions

Can I have both an HSA and an FSA at the same time?

No. If you have an HSA, you cannot enroll in a regular FSA because the FSA would disqualify you from HSA coverage. However, you can have an HSA and a Dependent Care FSA at the same time, since the Dependent Care FSA covers only childcare and adult dependent care, not medical expenses.

What happens to my HSA if I leave my job?

Your HSA stays with you. You own the account, not your employer. You can leave the money in the account, transfer it to a new provider, or roll it into another HSA. You can continue to use it to pay for medical expenses even if you are not working. If you enroll in a new health plan that is not an HDHP, you can no longer make new contributions, but you can still withdraw money for medical expenses.

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

Yes, as long as your spouse is claimed as a dependent on your tax return. You can also use the account to pay for your children's medical expenses. The expenses must be incurred by someone you claim as a dependent, and you must keep receipts showing the dependent's name.

What if I do not spend all my FSA money by the end of the year?

You lose it. FSA money does not roll over to the next year. Some employers offer a grace period of up to 2.5 months into the next year to spend remaining funds, or allow you to carry over up to $640, but this is optional. Check your employer's plan documents to see if either option is available. If not, plan your contributions carefully to avoid forfeiture.

Can I change my HSA or FSA contribution amount during the year?

For FSAs, you can change your contribution only during open enrollment or if you have a may have access to life event. For HSAs, you can change your contribution at any time if you are self-employed or if your employer allows it. Check with your HR department or provider about the rules for your specific plan.