Medical savings accounts are still available, but the type you can open depends on your health insurance

Medical savings accounts (MSAs) exist in two forms today: Health Savings Accounts (HSAs) and Archer Medical Savings Accounts (Archer MSAs). HSAs are the active option—you can open one right now if you have a high-deductible health plan. Archer MSAs are closed to new enrollees as of 2008, though people who already had one can keep it. Both let you set aside pre-tax money to pay medical expenses, and both let that money grow tax-free if you don't spend it.

The key difference is access: HSAs are widely available through employers, banks, and insurance companies. Archer MSAs are a legacy product—only existing account holders can maintain them. If you're looking to open a medical savings account today, you're almost certainly looking at an HSA.

Key Takeaways

  • Health Savings Accounts (HSAs) are the only medical savings account you can open now, and you must be enrolled in a high-deductible health plan to do so.
  • Money you contribute to an HSA is not subject to federal income tax, and it grows tax-free as long as you use it for medical expenses.
  • Archer Medical Savings Accounts were closed to new enrollees in 2008 and are no longer available to open, though existing account holders can keep theirs.
  • HSA contribution limits change yearly and depend on whether you have individual or family coverage—check the IRS website each January for the current year's limits.
  • You can withdraw HSA money for non-medical expenses after age 65 without penalty, though you'll owe income tax on the amount.

How Health Savings Accounts work today

An HSA is a savings account paired with a high-deductible health plan (HDHP). You contribute money to the account, the contribution reduces your taxable income, and you use the money to pay medical bills—copays, deductibles, prescriptions, dental work, vision care, and other may have access to medical expenses. Money you don't spend stays in the account and earns interest or investment returns, depending on how your account is set up.

The account belongs to you, not your employer or insurance company. If you leave your job, the account goes with you. If you change health plans, you keep the HSA as long as you stay enrolled in some HDHP. This portability is one reason HSAs have become the main medical savings vehicle.

To open an HSA, you need to be covered by a high-deductible health plan. The IRS sets the minimum deductible each year—for 2024, that's $1,600 for individual coverage and $3,200 for family coverage. Your plan also has an out-of-pocket maximum, which caps what you pay in a year. Once you meet your deductible, your insurance starts paying its share.

Contribution limits and tax treatment

The amount you can contribute to an HSA changes each year. For 2024, you can contribute up to $4,150 if you have individual coverage or $8,300 if you have family coverage. These limits are set by the IRS and typically increase slightly each year to account for inflation. Check the IRS website or your plan documents in January to confirm the current year's limits.

Contributions are tax-deductible whether you make them yourself or your employer makes them on your behalf. If your employer contributes, that money doesn't count as taxable income to you. If you contribute on your own, you can deduct the contribution on your tax return. Either way, the money grows tax-free, and withdrawals for may have access to medical expenses are not taxed.

You can contribute to an HSA only during the months you're enrolled in a high-deductible health plan. If you switch to a plan that doesn't may have access to (like a standard PPO or HMO), you stop being able to contribute, though you can still withdraw money from the account for medical expenses.

What counts as a may have access to medical expense

may have access to medical expenses include the obvious ones: doctor visits, hospital stays, surgery, prescription drugs, and dental and vision care. They also include medical equipment like crutches, wheelchairs, and blood pressure monitors; mental health treatment; physical therapy; and hearing aids. The IRS publishes a full list, and you can also find it on the HSA provider's website.

Over-the-counter medications and supplies count only if you have a prescription. Vitamins and supplements do not count unless they treat a specific medical condition and you have a doctor's prescription. Health club memberships, cosmetic procedures, and general wellness products do not count, even if they might improve your health.

If you withdraw money from your HSA for a non-may have access to expense before age 65, you owe income tax on the withdrawal plus a 20 percent penalty. After age 65, you can withdraw money for any reason without the penalty, though you'll owe income tax on non-medical withdrawals.

Where to open an HSA and what to watch for

Most employers that offer high-deductible health plans also offer an HSA through a designated provider. If your employer doesn't offer one, you can open an HSA on your own through a bank, credit union, or insurance company. Common providers include Fidelity, Lively, HealthEquity, and major banks. Shop around—fees, investment options, and customer service vary.

Some HSA providers charge monthly maintenance fees, transaction fees, or investment fees. Others charge nothing. If your balance is small, a provider with no fees makes more sense than one that charges $3 to $5 per month. If you plan to invest your HSA money rather than just hold it in cash, check what investment options the provider offers and what the expense ratios are.

When you open an HSA, you'll need to provide proof that you're enrolled in a high-deductible health plan. Your insurance company or employer can give you a document showing your plan meets the IRS definition. Keep this document—you may need it if you're audited or if you switch providers.

Archer MSAs: why they're no longer available

Archer Medical Savings Accounts were created in 1996 as a pilot program for self-employed people and small business owners. They worked similarly to HSAs—pre-tax contributions, tax-free growth, tax-free withdrawals for medical expenses. Congress intended to make them permanent, but instead closed them to new enrollees in 2008 when HSAs became available.

People who had an Archer MSA before 2008 can keep it and continue to contribute, though contribution limits are lower than HSA limits and the rules are more restrictive. If you inherited an Archer MSA from a spouse or are otherwise may be able to access to maintain one, you can still use it. But you cannot open a new one.

The IRS treats Archer MSAs the same way it treats HSAs for tax purposes: contributions are deductible, growth is tax-free, and withdrawals for medical expenses are not taxed. If you have an Archer MSA and want to move the money to an HSA, you can roll it over without penalty, though you'll need to meet HSA may be able to access requirements (enrollment in a high-deductible health plan).

How HSAs compare to other savings options

An HSA is different from a Flexible Spending Account (FSA), which is another way to set aside pre-tax money for medical expenses. FSAs are "use it or lose it"—money you don't spend by the end of the year is forfeited (though some plans allow a small carryover). HSAs have no expiration; money rolls over year to year. This makes HSAs better for long-term savings.

HSAs also differ from regular savings accounts because the money is invested in your name and grows over time. If you contribute $4,000 a year and don't touch it for 20 years, that money can grow substantially through interest and investment returns. A regular savings account would do the same, but you'd pay taxes on the interest earned each year. With an HSA, you pay no tax on the growth as long as you use the money for medical expenses eventually.

Some people use HSAs as retirement accounts. After age 65, you can withdraw money for any reason without the 20 percent penalty (though you'll owe income tax on non-medical withdrawals). This makes an HSA a useful supplement to a 401(k) or IRA if you want additional tax-advantaged savings.

Frequently Asked Questions

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

You can have an HSA and an FSA, but only if the FSA is a limited-purpose FSA that covers only dental and vision expenses, or a post-deductible FSA that doesn't cover anything until you've met your health plan's deductible. A standard FSA that covers medical expenses disqualifies you from HSA contributions. Check your plan documents to see what type of FSA your employer offers.

What happens to my HSA if I lose my high-deductible health plan coverage?

Your HSA stays yours. You can no longer contribute to it, but you can withdraw money for medical expenses anytime. If you enroll in another high-deductible health plan later, you can start contributing again. The account is portable and doesn't depend on any single job or plan.

Do I have to use my HSA money every year, or can I let it grow?

You can let it grow indefinitely. Unlike an FSA, there is no "use it or lose it" rule. Money in your HSA rolls over year to year, and you can withdraw it whenever you have a may have access to medical expense. Many people use HSAs as long-term savings accounts and only withdraw money when they have significant medical bills.

Can I invest my HSA money, or does it have to stay in cash?

Most HSA providers let you invest the money in mutual funds, stocks, or other investments, similar to a brokerage account. Some require a minimum balance in cash before you can invest the rest. Check your provider's options. If you're young and don't expect to use the money soon, investing can help it grow faster than a savings account.

What if I use my HSA money for something that turns out not to be a may have access to expense?

You'll owe income tax on the withdrawal plus a 20 percent penalty if you're under 65. Keep receipts for all medical expenses you pay with HSA money. If you're audited, the IRS may ask for proof that the expense was may have access to. After age 65, the penalty goes away, though you still owe income tax on non-medical withdrawals.