A health savings account is a tax-advantaged savings account tied to a high-deductible health plan

A health savings account (HSA) is a bank account you own that holds money specifically for medical expenses. You contribute pre-tax dollars to it, the money grows tax-free, and you withdraw it tax-free when you pay for may have access to medical costs. The catch: you must be enrolled in a high-deductible health plan (HDHP) to open and contribute to an HSA. If you leave that plan, you can keep the account and the money in it, but you cannot add new contributions.

The account works like a hybrid between a savings account and an investment account. You can keep the money in cash, or you can invest it in mutual funds or other securities through most HSA providers. Unlike a flexible spending account (FSA), which is "use it or lose it," an HSA rolls over year to year. Money you do not spend stays in the account indefinitely.

HSAs are offered through employers, banks, and insurance companies. If your employer offers one, they may contribute money to it as part of your benefits package. You can also open an individual HSA through a bank or financial institution if you have an HDHP purchased on your own.

Key Takeaways

  • You can only open an HSA if you are enrolled in a high-deductible health plan; once you leave that plan, you cannot contribute new money but can keep the account.
  • Contributions reduce your taxable income, growth is tax-free, and withdrawals for may have access to medical expenses are tax-free—a triple tax advantage no other account offers.
  • You can use HSA money for doctor visits, prescriptions, dental work, vision care, mental health treatment, and many other medical costs, but not for insurance premiums or over-the-counter medications without a prescription.
  • 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 the money in it; if you change jobs or health plans, the account and its balance stay with you.

Who can open an HSA and what the HDHP requirement means

To open an HSA, you must be covered by a high-deductible health plan. For 2024, the IRS defines an HDHP as a plan with a deductible of at least $1,600 for individual coverage or $3,200 for family coverage. The plan's out-of-pocket maximum cannot exceed $8,050 for individual coverage or $16,100 for family coverage. These numbers change annually. Your health plan documents will state whether it qualifies as an HDHP.

You cannot have other health coverage at the same time—no spouse's plan, no parent's plan, no separate accident or vision plan—with narrow exceptions for specific types of coverage like dental-only or vision-only plans. If you are on Medicare, you cannot contribute to an HSA, though you can keep an existing account and withdraw from it.

If your employer offers an HDHP, you can open an HSA through them or through an outside provider. If you buy your own HDHP through the health insurance marketplace or directly from an insurer, you can open an HSA at a bank, credit union, or investment firm that offers them. You do not have to use the same institution your employer uses.

Contribution limits and how much you can put in each year

The IRS sets annual contribution limits. For 2024, you can contribute up to $4,150 if you have individual coverage or $8,300 if you have family coverage. These limits include contributions from your employer, so if your employer puts $1,000 into your HSA, you can only add $3,150 more that year. The limits increase slightly each year to account for inflation.

If you are age 55 or older, you can contribute an additional $1,000 per year as a catch-up contribution. This applies even if you are still working and covered by an employer plan.

You can contribute at any time during the year, but contributions for a given tax year must be made by the tax filing deadline (usually April 15 of the following year). If you enroll in an HDHP mid-year, you can still contribute a full year's worth of funds if you remain in an HDHP through December 31.

What you can and cannot pay for with HSA money

HSA funds cover a broad range of medical expenses. may have access to expenses include doctor visits and hospital stays, prescription medications, dental work (cleanings, fillings, root canals, orthodontics), vision care (eye exams, glasses, contact lenses), mental health and therapy services, physical therapy, chiropractic care, hearing aids and related services, and medical equipment like crutches or blood pressure monitors. You can also use HSA money to pay your health plan's deductible, copayments, and coinsurance.

Expenses that do not may have access to include health insurance premiums (with exceptions for COBRA, long-term care insurance, and Medicare premiums after age 65), over-the-counter medications without a prescription, cosmetic procedures, gym memberships, and general wellness products. Some items sit in a gray area: over-the-counter pain relievers, allergy medications, and cold remedies do not may have access to unless a doctor prescribes them specifically for you.

Keep receipts and documentation for all HSA withdrawals. The IRS can audit your account and ask you to prove that withdrawals were for may have access to expenses. If you withdraw money for a non-may have access to expense before age 65, you owe income tax on that amount plus a 20 percent penalty.

How the tax advantages work and why they matter

An HSA offers three layers of tax benefit. First, contributions are pre-tax: money you put in reduces your taxable income for the year, lowering your federal income tax bill. If you contribute through payroll deduction at work, the money never hits your paycheck, so you also avoid Social Security and Medicare taxes on it. Second, the money grows tax-free: any interest, dividends, or investment gains in the account are not taxed. Third, withdrawals for may have access to medical expenses are tax-free. No other savings account offers all three benefits.

The math: if you earn $60,000 a year and contribute $3,000 to an HSA through payroll, your taxable income drops to $57,000. At a 22 percent federal tax rate, you save $660 in federal tax. You also avoid 7.65 percent in Social Security and Medicare taxes, saving another $230. Total tax savings: $890 on a $3,000 contribution. That money stays in your account and can be invested.

After age 65, the rules relax. You can withdraw money for any reason without the 20 percent penalty. Non-medical withdrawals are taxed as ordinary income, but the penalty goes away. This makes an HSA function like a traditional retirement account after 65, though the tax-free medical withdrawal benefit remains.

What happens to your HSA when you change jobs or health plans

Your HSA is yours to keep. If you leave your job, change employers, or switch to a different health plan, the account and all the money in it stay with you. You own it, not your employer. You can take the account to a new employer's HSA provider, move it to an individual HSA at a bank, or leave it where it is and manage it independently.

If you switch to a plan that is not an HDHP—such as a traditional PPO or HMO—you can no longer make new contributions to the HSA. However, you can keep the account open and continue to withdraw from it for may have access to medical expenses. The money does not disappear or get forfeited.

If you have an HSA through your employer and they close the plan or stop offering it, you have the right to roll the balance to an individual HSA at another institution. Your employer should provide instructions, but you can also contact an HSA provider directly and request a rollover. There is no tax consequence for moving the money between HSA accounts.

How to use your HSA card and track withdrawals

Most HSAs come with a debit card linked to the account. You can use it to pay for may have access to medical expenses directly at pharmacies, doctor offices, and hospitals. Some cards work like regular debit cards; others require you to submit a receipt after the purchase to prove it was a may have access to expense. Check with your HSA provider about how their card works.

You can also withdraw money by check, electronic transfer, or ATM, then pay the provider yourself. Keep all receipts and documentation. The IRS does not require you to submit receipts when you file taxes, but you must keep them in case of an audit. Many HSA providers offer online portals or apps where you can upload receipts and track which expenses have been documented.

If you withdraw money and later realize it was not a may have access to expense, you can put the money back into the account within a certain timeframe (rules vary by provider). This is called a recharacterization. Ask your HSA provider about their policy before making a questionable withdrawal.

Frequently Asked Questions

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

Yes. HSA money can pay for may have access to medical expenses of you, your spouse, and your dependents, regardless of whether they are covered by your health plan. You do not need to be on a family plan; an individual HDHP qualifies as long as you have no other health coverage.

What happens to my HSA if I die?

The account becomes part of your estate. If your spouse is the beneficiary, they can continue to use the account as their own HSA and withdraw for their own may have access to medical expenses tax-free. If a non-spouse inherits it, they owe income tax on the full balance, though withdrawals for the deceased's final medical expenses may be handled differently depending on state law.

Can I invest my HSA money in stocks or mutual funds?

Most HSA providers offer investment options, though some require a minimum balance (often $1,000 to $2,500) before you can invest. You can keep part of the balance in cash for near-term expenses and invest the rest for long-term growth. Investment performance is not may provide, and you bear the risk of losses.

What if I withdraw money from my HSA and then find out it was not a may have access to expense?

You owe income tax on that amount plus a 20 percent penalty if you are under 65. If you catch the mistake quickly, some providers allow you to redeposit the money within a limited window. After age 65, the penalty disappears, though you still owe income tax on non-medical withdrawals.

Do I have to use my HSA money before the end of the year?

No. Unlike a flexible spending account, HSA money rolls over indefinitely. You can let it accumulate year after year, invest it, and use it whenever you need it—even decades later in retirement. There is no "use it or lose it" deadline.