What a Health Savings Account Is

A Health Savings Account (HSA) is a tax-advantaged savings account you can open if you have a high-deductible health plan (HDHP). Money you put into an HSA is not taxed when you contribute it, grows tax-free while it sits there, and comes out tax-free when you use it to pay for may have access to medical expenses. Unlike a flexible spending account (FSA), which you must spend down each year or lose the money, an HSA rolls over year to year — the balance stays yours indefinitely.

The account is portable: if you change jobs or health plans, you keep the HSA and the money in it. You own the account, not your employer. This makes it different from an FSA, which your employer controls and which typically ends when you leave the job.

An HSA requires that you be enrolled in an HDHP. The IRS sets the minimum deductible each year — for 2024, that is $1,600 for individual coverage and $3,200 for family coverage, though these numbers change annually. You cannot have other health coverage (with limited exceptions for specific plans like dental or vision) and cannot be claimed as a dependent on someone else's tax return.

Key Takeaways

  • You can only open an HSA if you are enrolled in a high-deductible health plan, and the IRS sets the minimum deductible each year.
  • Contributions reduce your taxable income, the money grows tax-free, and withdrawals for may have access to medical expenses are tax-free.
  • Unlike an FSA, an HSA balance rolls over year to year and stays with you if you change jobs or health plans.
  • You can withdraw money for non-medical expenses after age 65 without penalty, though you will owe income tax on the amount.
  • The IRS publishes a list of what counts as a may have access to medical expense, and using HSA money for anything else before age 65 triggers a 20 percent penalty plus income tax.

Contribution Limits and Who Can Contribute

You can contribute to your own HSA, your employer can contribute to it, and family members can contribute to it — but the total from all sources cannot exceed the annual limit set by the IRS. For 2024, the limit is $4,150 for individual coverage and $8,300 for family coverage. These limits increase most years; the IRS announces the new limits in the fall for the following year.

If you turn 55 before the end of the year, you can contribute an extra $1,000 per year (called a catch-up contribution) until you enroll in Medicare. This is separate from the main limit. Once you are on Medicare, you can no longer contribute to an HSA, though you can still withdraw money from it for may have access to expenses.

Your employer may offer payroll deductions for HSA contributions, which means the money comes out before income tax is calculated — lowering your taxable income for the year. If you contribute on your own (not through payroll), you claim the deduction on your tax return using IRS Form 8889.

Tax Treatment: How Contributions, Growth, and Withdrawals Work

An HSA has three tax advantages. First, money you contribute is deductible from your taxable income — whether you contribute through your employer's payroll or on your own. Second, any interest or investment gains inside the account are not taxed each year. Third, withdrawals for may have access to medical expenses are not taxed at all.

This three-part tax benefit is what makes an HSA different from a regular savings account. If you put $3,000 into a regular savings account and it earns $100 in interest, you owe tax on that $100. With an HSA, the $100 grows tax-free. If you then withdraw $3,100 to pay a medical bill, none of it is taxed.

The tax-free withdrawal only applies to may have access to medical expenses. The IRS maintains a list of what qualifies: doctor visits, hospital stays, prescription drugs, dental work, vision care, mental health treatment, and many other services. Cosmetic procedures, gym memberships, and over-the-counter medications (except insulin) do not may have access to. If you withdraw money for a non-may have access to expense before age 65, you owe income tax on the amount plus a 20 percent penalty.

may have access to Medical Expenses You Can Pay From an HSA

may have access to medical expenses include any cost for diagnosis, cure, mitigation, treatment, or prevention of disease, or for treatment affecting any part or function of the body. This covers doctor and dentist visits, hospital stays, surgery, prescription medications, medical equipment like crutches or wheelchairs, and mental health counseling. It also covers some costs that health insurance does not pay for, like certain deductibles, copayments, and coinsurance.

Over-the-counter medications are may have access to only if you have a prescription for them or if they are insulin (which does not require a prescription). Vitamins and supplements are generally not may have access to unless they treat a specific medical condition and you have a doctor's recommendation. Cosmetic procedures, including cosmetic dentistry, are not may have access to. Gym memberships and general wellness programs are not may have access to, though some employer-sponsored wellness programs may be.

You can use HSA money to pay for your spouse's or dependent's may have access to medical expenses, even if they are not on your health plan. You do not have to use the money in the same year you contribute it — you can let it accumulate and use it years later. Keep receipts and records of what you paid for, because the IRS can ask you to prove that withdrawals were for may have access to expenses.

How to Access Your Money and Investment Options

When you open an HSA, the financial institution holding it (usually a bank or investment company) gives you a debit card or checkbook to withdraw money directly. You can also request a check or electronic transfer. Some HSAs allow you to submit receipts for reimbursement after you have paid a medical bill out of pocket.

Many HSAs let you invest the balance in mutual funds, stocks, or bonds, similar to a retirement account. The money grows tax-free, and you can move it between investments without triggering taxes. Some HSAs charge fees for investment management or account maintenance; others do not. If you keep the money in a savings portion of the account, it typically earns a small amount of interest.

You can withdraw money at any time for any reason, but only withdrawals for may have access to medical expenses avoid the 20 percent penalty. After age 65, you can withdraw money for any reason without the penalty — you will owe income tax on non-medical withdrawals, but not the extra penalty. This makes an HSA function like a retirement account after 65, similar to a traditional IRA.

How an HSA Differs From an FSA and Other Savings Accounts

An FSA (Flexible Spending Account) and an HSA both let you set aside pre-tax money for medical expenses, but they work differently. An FSA has a "use it or lose it" rule: if you do not spend the money by the end of the year (or during a grace period), it goes back to your employer. An HSA has no such important date — your balance rolls over indefinitely. An FSA is owned and controlled by your employer; an HSA is yours to keep even if you change jobs.

An FSA typically has a lower annual limit (around $3,200 in 2024, though this varies by employer) and does not allow investment options — the money sits in a cash account. An HSA has a higher limit and often lets you invest the balance. You cannot have both an FSA and an HSA in the same year, though you can have an FSA for dependent care expenses alongside an HSA for medical expenses.

A regular savings account offers no tax advantages: contributions are made with after-tax money, interest is taxed each year, and withdrawals are not taxed (because you already paid tax on the money going in). An HSA is more powerful because all three stages — contribution, growth, and withdrawal — are tax-free for medical expenses.

What Happens to Your HSA When You Change Jobs or Retire

Your HSA stays with you when you leave a job. The account does not close, and the money does not go back to your employer. You keep the balance and can continue to use it for may have access to medical expenses. If your new employer offers an HSA, you can keep your old one or open a new one — you are not required to consolidate them, though many people do for simplicity.

If your new job does not offer an HDHP, you can still keep your HSA and withdraw money from it for may have access to expenses. You straightforward cannot make new contributions to it unless you re-enroll in an HDHP later. This makes an HSA useful as a long-term medical savings tool even if your coverage changes.

When you turn 65 and enroll in Medicare, you can no longer contribute to an HSA. However, you can still withdraw money from it for may have access to medical expenses, including Medicare premiums (with some exceptions), copayments, and deductibles. After 65, non-medical withdrawals are taxed as income but do not trigger the 20 percent penalty, making the account function like a traditional IRA at that point.

Frequently Asked Questions

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

Yes. You can use HSA money to pay for may have access to medical expenses of your spouse and any dependents you claim on your tax return, regardless of whether they are on your health plan. You do not need to be the one receiving the medical care — the expense just needs to be may have access to.

What happens if I withdraw money from my HSA for something that is not a medical expense?

Before age 65, you owe income tax on the withdrawal plus a 20 percent penalty. After age 65, you owe income tax but no penalty. Keep receipts for all medical expenses you pay from your HSA in case the IRS asks you to prove the withdrawal was may have access to.

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

Yes. You can open an HSA on your own as long as you are enrolled in an HDHP, even if your employer does not sponsor an HSA. You will contribute after-tax dollars and claim the deduction on your tax return using IRS Form 8889.

Do I have to spend my HSA money each year?

No. Unlike an FSA, an HSA has no important date to spend the money. Your balance rolls over year to year and can accumulate indefinitely. Many people use an HSA as a long-term savings tool for future medical expenses or retirement.

What if I no longer have an HDHP — can I still use my HSA?

You can still withdraw money from your HSA for may have access to medical expenses, but you cannot make new contributions. If you later re-enroll in an HDHP, you can resume contributing to the same account.