An HSA holds pre-tax money you set aside for medical expenses, and you control how it gets spent

A Health Savings Account (HSA) is a bank account—literally, with a routing number and account number—that lets you put money in before taxes are taken out of your paycheck. The money sits there until you spend it on medical bills: doctor visits, prescriptions, dental work, glasses, hearing aids, therapy. You decide when to withdraw it and what to pay for. The account is yours to keep, even if you change jobs or retire. The money that stays unspent grows tax-free, and you never pay taxes on withdrawals used for medical expenses.

To open an HSA, you must be enrolled in a high-deductible health plan (HDHP)—a specific type of health insurance with lower monthly premiums but a higher deductible. You cannot have an HSA if you are on Medicare, covered by a spouse's non-HDHP plan, or claimed as a dependent on someone else's taxes. Most HSAs are opened through your employer's benefits system during open enrollment, though you can also open one independently through a bank or financial institution if you buy your own HDHP.

Key Takeaways

  • You contribute money to an HSA before taxes are withheld from your paycheck, reducing your taxable income for the year.
  • You can withdraw money anytime to pay for medical expenses—no approval needed, no waiting period, no receipts required upfront.
  • Unspent money rolls over year to year and grows tax-free; there is no "use it or lose it" deadline like there is with FSAs.
  • After age 65, you can withdraw money for any reason without penalty, though non-medical withdrawals are taxed as income.
  • You own the account and can take it with you if you change jobs, retire, or switch health plans.

How money gets into your HSA

If your employer offers an HSA, you elect a contribution amount during open enrollment—usually once a year in the fall or winter. That amount is deducted from your paycheck before federal income tax, Social Security tax, and Medicare tax are calculated. For 2024, the IRS allows you to contribute up to $4,150 if you have individual coverage or $8,300 if you have family coverage; these limits change yearly. Your employer may also contribute money on your behalf, and that contribution does not count against your limit.

If you do not have access to an HSA through work, you can open one independently at a bank, credit union, or investment firm that offers HSAs. You contribute money directly from your checking account, and you claim the deduction on your tax return (Form 1040, Schedule 1) when you file. Self-employed people and those with individual HDHP plans often use this route.

The key tax benefit: money going into an HSA is never taxed, whether it comes from your paycheck or you contribute it yourself. This is different from a regular savings account, where you use after-tax dollars.

How to spend HSA money and what qualifies

You access your HSA money through a debit card, check, or transfer—just like a regular bank account. There is no approval process, no waiting period, and no requirement to show a receipt at the time of withdrawal. You simply spend it on a medical expense and keep your receipt for your records in case the IRS ever asks.

may have access to medical expenses include doctor visits, hospital stays, prescription drugs, dental work, vision care, mental health treatment, physical therapy, hearing aids, and medical equipment like crutches or blood pressure monitors. They also include some over-the-counter items: pain relievers, allergy medicine, antacids, and first-aid supplies all count. Cosmetic procedures do not count unless they are medically necessary (for example, reconstructive surgery after an accident). Gym memberships, vitamins, and general wellness products do not may have access to.

You can also use HSA money to pay insurance premiums in specific situations: COBRA premiums (if you lose employer coverage), long-term care insurance premiums, and Medicare premiums after you turn 65. You cannot use it to pay regular health insurance premiums while you are employed, with the exception of COBRA.

What happens to money you do not spend

Unlike a Flexible Spending Account (FSA), which has a "use it or lose it" rule, HSA money rolls over year after year. If you contribute $3,000 and spend only $1,500, the remaining $1,500 stays in your account and is still yours next year. You can let it accumulate for decades if you want.

Many HSAs allow you to invest unspent money in mutual funds, stocks, or bonds—similar to a retirement account. The growth is tax-free as long as you eventually use it for medical expenses. Some people treat an HSA like a retirement savings vehicle, contributing the maximum each year, spending only what they need from their regular paycheck, and letting the rest grow. This strategy works because after age 65, you can withdraw money for any reason without penalty; you just pay income tax on non-medical withdrawals, the same as you would with a traditional IRA.

What happens if you withdraw money for non-medical expenses

If you withdraw HSA money before age 65 and use it for something that is not a may have access to medical expense, you owe income tax on that amount plus a 20 percent penalty. For example, if you withdraw $500 for a vacation and you are in the 22 percent tax bracket, you would owe $110 in taxes plus $100 in penalty—a total of $210 on top of the $500 you withdrew. This makes HSA money expensive to access for non-medical reasons while you are working.

After age 65, the 20 percent penalty goes away. You can withdraw money for any reason, but you still owe income tax on non-medical withdrawals. This is why some people view an HSA as a stealth retirement account: if you do not need the money for medical expenses, you can treat it like a traditional IRA after 65.

Keeping records and proving expenses to the IRS

You do not need to submit receipts when you withdraw HSA money. However, you must keep receipts and documentation for at least three years in case the IRS audits you. The IRS can ask you to prove that withdrawals were for may have access to medical expenses, and if you cannot, you owe taxes and penalties on those withdrawals retroactively.

Some HSA providers offer a feature called "substantiation" where you upload receipts directly to your account, creating a record. This is optional but useful for your own tracking. At minimum, keep receipts in a folder or digital file organized by year and expense type.

What changes if you leave your job or switch health plans

Your HSA is yours to keep. If you leave your job, change employers, retire, or switch to a non-HDHP plan, the money in your HSA stays in your account. You can continue to withdraw it for medical expenses as long as you remain may be able to access (which means you cannot open a new HSA with a different HDHP, but you can keep using the old one). If you switch to a non-HDHP plan, you can no longer contribute new money to the HSA, but existing money can still be spent on medical expenses.

Some employers allow you to take your HSA with you; others require you to roll it over to a new provider. Check with your employer's benefits administrator or your HSA provider about the process. The money itself cannot be lost—it is in an account with your name on it.

Frequently Asked Questions

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

Yes. HSA money can be used for medical expenses of your spouse and any dependent you claim on your taxes, even if they are not covered by your HDHP. You do not need to be on the same health plan.

What if I contribute too much to my HSA by mistake?

If you over-contribute, you can withdraw the excess amount plus any earnings on it before the tax filing deadline (usually April 15). You will owe income tax on the earnings but not on the excess contribution itself. If you do not catch it in time, you owe a 6 percent excise tax on the excess for each year it sits in the account.

Can I use HSA money to pay for dental or vision insurance premiums?

No. You cannot use HSA money to pay premiums for dental or vision insurance. You can use it to pay for dental and vision care (cleanings, fillings, glasses, contacts), but not the insurance itself. The exception is COBRA premiums, which can be paid with HSA money.

Do I have to spend my HSA money in the same year I contribute it?

No. HSA money rolls over indefinitely. You can contribute in 2024 and spend it in 2030 if you want. There is no deadline to use the money, unlike an FSA which typically expires at the end of the year.

What happens to my HSA if I die?

If you name a spouse as beneficiary, they can continue to use the HSA as if it were their own. If a non-spouse is the beneficiary, the account is closed and they receive the balance as a lump sum; they owe income tax on the full amount, but no penalty.