A Health Savings Account (HSA) is a tax-advantaged account that lets you set aside money specifically for medical expenses. You contribute pre-tax dollars, 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 health insurance plan.
Who Can Open an HSA
To be eligible, you need to be covered by a high-deductible health plan (HDHP). For 2026, a qualifying HDHP must have a minimum deductible of $1,700 for self-only coverage or $3,400 for family coverage. It must also cap your annual out-of-pocket costs at no more than $8,500 for an individual or $17,000 for a family. These thresholds are adjusted annually for inflation.
Beyond the plan requirement, you can’t be enrolled in Medicare, claimed as a dependent on someone else’s tax return, or covered by a non-HDHP health plan (like a spouse’s traditional insurance that covers you). If you meet all the criteria, you can open an HSA through your employer, a bank, a brokerage, or a credit union.
The Triple Tax Advantage
HSAs get their reputation from three layers of tax savings that no other account combines in quite the same way:
- Tax-free contributions. Money you put in reduces your taxable income for the year. If your employer offers payroll deductions into your HSA, those contributions also skip Social Security and Medicare taxes, saving you an additional 7.65% on every dollar contributed.
- Tax-free growth. Any interest or investment gains inside the account are never taxed as long as the money stays in the HSA.
- Tax-free withdrawals. When you spend HSA funds on qualified medical expenses, you owe zero tax on the distribution.
To put that in practical terms: if you’re in the 22% federal tax bracket and contribute $4,400 through payroll deductions, you save roughly $1,300 in federal income tax and payroll taxes compared to paying for the same medical expenses with after-tax money. State tax savings may add to that depending on where you live.
How Much You Can Contribute
For 2026, the annual contribution limit is $4,400 for self-only coverage and $8,750 for family coverage. These limits include anything your employer contributes on your behalf. If you’re 55 or older and not yet enrolled in Medicare, you can make an additional catch-up contribution of $1,000 per year on top of the standard limit.
You have until the tax filing deadline (typically April 15 of the following year) to make contributions for a given tax year. If you become eligible for an HSA partway through the year, your contribution limit is generally prorated based on the number of months you were covered by a qualifying HDHP.
What You Can Spend HSA Money On
Qualified medical expenses cover a broad range of costs. Doctor visits, hospital stays, lab work, ambulance services, and mental health care all count. Dental expenses like cleanings, fillings, braces, extractions, and dentures qualify. Vision expenses including eye exams, glasses, contact lenses, and corrective surgeries like LASIK are eligible too.
You can also use HSA funds for medical supplies such as bandages, crutches, blood sugar test kits, pregnancy test kits, and breast pumps. Over-the-counter medications generally require a prescription to qualify, with insulin being the notable exception (it’s always eligible).
If you spend HSA money on something that isn’t a qualified medical expense, you’ll owe income tax on the withdrawal plus a steep 20% penalty. That penalty disappears once you turn 65, but you’ll still owe regular income tax on non-medical withdrawals at any age.
Investing Your HSA Balance
Many people use their HSA like a checking account, depositing money and spending it on medical bills as they come up. But the real long-term power comes from investing the balance. Most HSA providers let you invest in stocks, bonds, ETFs, and mutual funds once your cash balance reaches a certain threshold, though some providers like Fidelity have no minimum balance requirement to start investing.
The strategy that maximizes the account’s value: pay current medical expenses out of pocket if you can afford to, and let your HSA investments compound tax-free for years or even decades. There’s no requirement to withdraw HSA money in the same year you incur a medical expense. You can pay out of pocket today, save the receipt, and reimburse yourself from the HSA ten years later, tax-free. The account has no deadline for claiming reimbursement as long as the expense occurred after the HSA was established.
Your Money Rolls Over and Stays Yours
Unlike a flexible spending account (FSA), which typically forces you to use your balance within the plan year or lose it, HSA funds roll over indefinitely. There is no expiration date. Money you contribute this year can sit in the account for 30 years if you don’t need it.
The account also belongs entirely to you. If you change jobs, get laid off, or switch to a non-HDHP insurance plan, the HSA and everything in it stays with you. You just can’t make new contributions during any period when you’re not covered by a qualifying high-deductible plan. You can still spend the existing balance on qualified medical expenses at any time.
How HSAs Work After Age 65
Once you enroll in Medicare, you can no longer contribute to an HSA. This applies from the first month of Medicare coverage, including any period of retroactive enrollment. If you delay signing up for Medicare, you can keep contributing until your coverage begins, but be aware that Medicare Part A is often backdated to up to six months before your application date. Any HSA contributions made during that retroactive period count as excess contributions and may trigger a tax penalty.
You can still spend your existing HSA balance after enrolling in Medicare. Qualified medical expenses work the same way, and after 65 you gain one additional benefit: you can use HSA funds to pay Medicare premiums (Part A, Part B, Part D, and Medicare Advantage), though not Medigap supplemental policy premiums.
The 20% penalty for non-medical withdrawals also goes away at 65. If you withdraw HSA money for a vacation or a new car after that age, you’ll pay ordinary income tax on it, similar to how a traditional IRA withdrawal works, but no penalty. This makes an HSA a flexible backup retirement account. If you end up needing the funds for medical costs, the withdrawal is completely tax-free. If you need them for something else, you pay tax but nothing extra.
How to Get Started
If your employer offers an HDHP with an HSA option, enrollment typically happens during open enrollment. Your employer may contribute a set amount to your HSA as a benefit, and you can add your own contributions through payroll deductions for the maximum tax savings.
If you buy your own high-deductible health plan through the marketplace or directly from an insurer, you can open an HSA independently at a bank, credit union, or brokerage. Compare providers based on fees, investment options, and any minimum balance requirements. Some charge monthly maintenance fees that eat into your savings, while others waive fees entirely.
Once the account is open, you’ll typically receive a debit card linked to your HSA for paying medical expenses directly. Keep receipts for every qualified expense, whether you pay from the HSA immediately or plan to reimburse yourself later. Good recordkeeping protects you if the IRS ever questions a withdrawal.