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

A Health Savings Account (HSA) is a savings account you own and control that lets you set aside money for medical expenses before taxes are taken out. You can only open one if you're enrolled in a high-deductible health plan (HDHP)—a type of health insurance with lower monthly premiums but higher deductibles than traditional plans. The money you put in reduces your taxable income, grows tax-free, and comes out tax-free when you spend it on medical costs.

Unlike a flexible spending account (FSA), which you lose if you don't spend the money by the end of the year, an HSA rolls over year to year. The account stays yours even if you change jobs or retire. You can invest the balance in stocks, bonds, or mutual funds, and you're not required to spend it all by any important date.

Key Takeaways

  • You must be enrolled in a high-deductible health plan to open an HSA, and you cannot have other health coverage or use Medicare.
  • Money you contribute reduces your taxable income, and withdrawals for medical expenses are never taxed.
  • The account is yours to keep—it doesn't empty at year-end and follows you between jobs.
  • You can withdraw money for any reason after age 65, though non-medical withdrawals before 65 are taxed as income plus a 20 percent penalty.
  • may be able to access medical expenses include deductibles, copays, prescriptions, dental work, vision care, and some medical equipment, but not insurance premiums or cosmetic procedures.

Who can open an HSA and what the requirements are

To open an HSA, you must be enrolled in an HDHP. For 2024, an HDHP has a minimum deductible of $1,600 for individual coverage or $3,200 for family coverage. You also cannot be covered by any other health plan—including a spouse's plan, a parent's plan, or Medicare—and you cannot claim yourself as a dependent on someone else's tax return.

You can open an HSA through your employer if they offer one, or you can open one independently through a bank, credit union, or investment firm. There is no income limit. If you're self-employed, you can open an HSA as long as you have an HDHP. Once you stop meeting the requirements—for example, if you switch to a traditional health plan or enroll in Medicare—you can no longer contribute, but the money already in the account stays yours.

How much you can contribute and what the tax benefit is

Contribution limits are set by the IRS and change yearly. For 2024, you can contribute up to $4,150 if you have individual coverage or $8,300 if you have family coverage. If you're 55 or older, you can add an extra $1,000 per year. You can contribute the full amount in one lump sum or spread it across the year.

The tax benefit works three ways: money you contribute is deducted from your taxable income, any interest or investment gains in the account are not taxed, and withdrawals for medical expenses are not taxed. If your employer contributes to your HSA, that money also counts toward the limit but doesn't count as taxable income to you. This makes an HSA one of the few accounts where money goes in untaxed, grows untaxed, and comes out untaxed—as long as you spend it on medical costs.

What medical expenses you can pay for with HSA money

You can use HSA funds for a broad range of medical, dental, and vision expenses. may be able to access costs include deductibles, copays, coinsurance, prescription medications, dental fillings and cleanings, orthodontia, eyeglasses and contact lenses, hearing aids, crutches, wheelchairs, and some home medical equipment. You can also pay for mental health treatment, physical therapy, and certain over-the-counter medications if prescribed by a doctor.

Expenses that do not may have access to include health insurance premiums (with a few exceptions), cosmetic procedures, gym memberships, vitamins not prescribed by a doctor, and teeth whitening. If you're unsure whether a specific cost qualifies, the IRS publishes a full list, and your HSA provider can also tell you whether a particular expense is may be able to access before you withdraw the money.

How to use HSA money and keep records

Most HSAs come with a debit card you can use at pharmacies, doctor's offices, and hospitals. Some accounts also let you submit receipts for reimbursement. You can withdraw money at any time, but you need to keep receipts and documentation showing the expense was medical and the date it occurred. The IRS does not require you to submit receipts when you withdraw, but you must be able to produce them if audited.

You can also leave money in the account and not touch it—there is no requirement to spend it by any date. This makes an HSA useful as a long-term savings vehicle. Some people use it as a retirement account by saving receipts and reimbursing themselves years later, which lets the account grow untaxed for decades.

What happens to HSA money after age 65 or if you stop using it

After you turn 65, you can withdraw money from your HSA for any reason without penalty, though non-medical withdrawals are taxed as ordinary income. This is different from before 65, when withdrawing money for non-medical reasons triggers both income tax and a 20 percent penalty. At 65, the account essentially becomes a regular retirement savings account with a tax advantage for medical expenses.

If you leave your job, your HSA stays with you—it does not belong to your employer. You can keep contributing if you remain enrolled in an HDHP, or you can stop contributing and let the balance sit. If you switch to Medicare or a non-high-deductible plan, you can no longer contribute, but the money in the account is yours to use for medical expenses for the rest of your life.

HSA vs. FSA: what the differences mean for you

An FSA is another tax-advantaged account for medical expenses, but it works differently. FSA money must be spent by the end of the plan year or you lose it (though some plans allow a small carryover). An HSA rolls over year to year and is yours to keep. FSAs are usually offered only through employers, while HSAs can be opened independently. FSAs have lower contribution limits—typically $3,200 per year—but do not require you to be in a high-deductible plan.

If your employer offers both, an HSA is usually the better choice because you keep the money and can invest it. An FSA makes sense if you have predictable medical expenses each year and want to use pre-tax money without the investment options. Some employers let you have both an FSA for dependent care and an HSA for medical expenses, but you cannot have two medical FSAs or two HSAs at the same time.

Frequently Asked Questions

Can I use HSA money to pay for my health insurance premium?

Generally no, but there are exceptions. You cannot use HSA funds to pay regular health insurance premiums. However, you can use HSA money to pay premiums for COBRA coverage, long-term care insurance, or health insurance while you're receiving unemployment benefits. Medicare premiums are also may be able to access after you turn 65.

What happens to my HSA if I change jobs?

Your HSA is yours to keep. The account does not belong to your employer, so you take it with you. You can continue to use the money for medical expenses and keep it invested. If your new employer offers an HSA, you can contribute to your existing account or open a new one—but you cannot have two HSAs at the same time, so you would need to close or consolidate them.

Can I withdraw HSA money for something that is not medical?

Yes, but before age 65 you pay income tax on the withdrawal plus a 20 percent penalty. After age 65, you can withdraw for any reason and only pay income tax—no penalty. This is why some people use an HSA as a retirement account: they save receipts and reimburse themselves years later, letting the account grow tax-free.

Do I have to use my HSA every year?

No. Unlike an FSA, there is no "use it or lose it" rule. You can leave money in the account indefinitely and use it whenever you need it. There is also no requirement to spend a certain amount each year or to withdraw anything at all.

Can my spouse and I share one HSA?

No. Each person must have their own HSA. If you both have family coverage under the same HDHP, you each open separate accounts and can each contribute up to the family limit, but the combined contributions cannot exceed the family limit for that year.