A health savings account (HSA) is a tax-advantaged savings account designed to help you pay for medical expenses. You contribute money before taxes, the balance grows tax-free, and withdrawals for qualified medical costs are also tax-free. That triple tax benefit makes HSAs one of the most powerful savings tools available, but you can only open one if you’re enrolled in a qualifying high-deductible health plan.
How the Triple Tax Advantage Works
HSAs get their reputation from a rare combination of three separate tax breaks that no other account type offers all at once.
First, your contributions reduce your taxable income. If your employer deducts HSA contributions directly from your paycheck, those dollars are never taxed. If you fund the account on your own, you deduct the contributions when you file your tax return. Either way, every dollar you put in lowers your tax bill for the year.
Second, any investment gains or interest earned inside the account grow without being taxed. You won’t owe federal income tax on earnings as long as the money stays in the HSA. Many HSA providers let you invest your balance in mutual funds or other options once you’ve built up a cash cushion, so the account can grow significantly over time.
Third, withdrawals are completely tax-free when you use them for qualified medical expenses. There’s no federal tax on the way in, no tax while it grows, and no tax on the way out for medical spending. A couple of states do tax HSA contributions or earnings at the state level, so check your state’s rules.
Who Can Open an HSA
To be eligible, you need to be covered by a high-deductible health plan (HDHP). That’s a health insurance plan with a higher annual deductible than a typical plan, meaning you pay more out of pocket before insurance kicks in. For 2026, a qualifying HDHP must have a minimum annual deductible of $1,700 for individual coverage or $3,400 for family coverage. The plan’s out-of-pocket maximum can’t exceed $8,500 for an individual or $17,000 for a family.
Beyond having the right insurance plan, you also can’t be enrolled in Medicare, claimed as a dependent on someone else’s tax return, or covered by a non-HDHP plan (like a spouse’s traditional health plan that covers you). If you meet all the requirements, you can open an HSA through your employer’s benefits program or on your own through a bank, credit union, or brokerage.
Contribution Limits
The IRS sets annual caps on how much you can put into an HSA. These limits are adjusted each year for inflation. Your personal contributions, plus any money your employer adds, count toward the same cap. If your employer contributes $500, your own allowed contribution drops by $500.
If you’re 55 or older, you can contribute an extra $1,000 per year as a catch-up contribution. This amount is set by law and doesn’t change with inflation. You have until the tax filing deadline (typically April 15 of the following year) to make contributions that count toward the prior year’s limit.
What You Can Spend HSA Money On
Qualified medical expenses cover a broad range of costs for you, your spouse, and your dependents. Doctor visits, hospital bills, prescription drugs, dental work, vision care, and mental health services all qualify. Over-the-counter medications, whether or not a doctor prescribed them, are eligible too. So are items like contact lenses, hearing aids, menstrual care products, condoms, and insulin products.
There are limits, though. You generally can’t use HSA funds to pay insurance premiums, with a few exceptions: long-term care insurance, COBRA continuation coverage, health coverage while you’re receiving unemployment benefits, and Medicare premiums (but not Medigap) once you’re 65 or older.
If you withdraw money for something that isn’t a qualified medical expense before age 65, you’ll owe income tax on the amount plus a 20% penalty. After 65, that penalty disappears, and non-medical withdrawals are simply taxed as ordinary income, similar to pulling money from a traditional IRA.
Your Money Rolls Over and Stays Yours
Unlike a flexible spending account (FSA), which typically forces you to use your balance by the end of the plan year or lose it, an HSA has no expiration. Every dollar rolls over indefinitely. You own the account outright, regardless of who your employer is. If you change jobs, get laid off, or retire, your HSA and its full balance go with you.
This portability makes HSAs useful for long-term savings. Some people deliberately pay current medical bills out of pocket and let their HSA balance grow for years, treating it as a retirement account earmarked for healthcare costs later in life. Since healthcare expenses tend to increase with age, having a dedicated, tax-free pool of money waiting can be a significant financial cushion.
Using an HSA in Retirement
Once you turn 65 and enroll in Medicare, you can no longer contribute to an HSA, but you can keep spending the balance tax-free on qualified medical expenses. That includes Medicare premiums (Parts A, B, and D), copays, prescriptions, dental care, and many other costs that Medicare doesn’t fully cover.
If you want to use HSA funds for non-medical expenses after 65, you can do that without penalty. Those withdrawals are taxed as regular income, making the account function much like a traditional IRA at that point. But using the money for medical costs remains the better deal, since those withdrawals stay completely tax-free.
How to Get Started
If your employer offers an HDHP with an HSA option, enrollment usually happens during open enrollment. Your employer may contribute a set amount to your account each year as an incentive. Payroll deductions make contributing easy and give you the tax benefit automatically.
If you’re self-employed or your employer doesn’t offer an HSA, you can open one independently at many banks, credit unions, and brokerages, as long as you have qualifying HDHP coverage. Compare providers on fees, investment options, and minimum balance requirements. Some charge monthly maintenance fees that can eat into a small balance, while others waive fees entirely. Once the account is open, you claim your tax deduction when you file your return.