A Health Savings Account (HSA) is a tax-advantaged savings account designed to help you pay for medical expenses. You contribute money before taxes, it grows tax-free, and you can withdraw it tax-free for qualified health care costs. That triple tax benefit makes it 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
Most savings accounts give you one tax break. An HSA gives you three. First, contributions reduce your taxable income. If you contribute through payroll deductions, those contributions also dodge Social Security and Medicare taxes, saving you an additional 7.65%. Second, any money you invest inside the account grows tax-free. Third, withdrawals for qualified medical expenses are completely tax-free.
No other account in the U.S. tax code offers all three benefits simultaneously. A traditional IRA or 401(k) gives you a tax break on contributions but taxes withdrawals. A Roth IRA taxes contributions but lets withdrawals go free. An HSA, used for medical expenses, skips taxes at every stage.
Who Can Open an HSA
To be eligible, you need to be covered by a High Deductible Health Plan (HDHP). For 2026, that means your plan’s annual deductible is at least $1,700 for self-only coverage or $3,400 for family coverage. The plan must also cap your total out-of-pocket costs (copays, coinsurance, and the deductible itself) at no more than $8,500 for an individual or $17,000 for a family. Those out-of-pocket limits don’t include premiums or out-of-network charges.
Beyond having an HDHP, you also can’t be enrolled in Medicare, claimed as a dependent on someone else’s tax return, or covered by another health plan that isn’t a high-deductible plan. If your spouse has a traditional health insurance plan that covers you, you typically won’t qualify.
Contribution Limits for 2026
For 2026, the IRS allows you to contribute up to $4,400 if you have self-only HDHP coverage, or $8,750 if you have family coverage. If you’re 55 or older, you can add an extra $1,000 per year as a catch-up contribution.
Your employer can contribute to your HSA too, and many do. Employer contributions count toward your annual limit, so if your company puts in $1,000 and you have self-only coverage, you can contribute up to $3,400 yourself. You have until the tax filing deadline (typically April 15 of the following year) to make contributions for the prior year.
What You Can Spend HSA Money On
Qualified medical expenses cover a wide range of health care costs: doctor visits, prescriptions, dental work, vision care, lab tests, mental health services, and medical equipment like crutches or blood sugar monitors. Over-the-counter medications and menstrual care products also qualify. You can even use HSA funds for certain insurance premiums in limited situations, such as COBRA coverage or long-term care insurance.
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 a traditional IRA distribution. Medical withdrawals remain completely tax-free at any age.
Your Money Rolls Over and Stays Yours
Unlike a Flexible Spending Account (FSA), an HSA has no “use it or lose it” deadline. Every dollar you contribute rolls over indefinitely, year after year. There’s no expiration date and no pressure to spend down your balance before December 31.
The account also belongs to you, not your employer. If you change jobs, get laid off, or retire, your HSA and everything in it stays with you. An FSA, by contrast, is owned by your employer. Leave the company, and you typically forfeit whatever is left in the account. FSAs also limit rollovers to a small amount (no more than $680 from 2026 into 2027), and many employers don’t allow any carryover at all.
Investing Inside Your HSA
Most HSA providers let you invest your balance in mutual funds, index funds, or other options once you reach a certain cash threshold (often $1,000 or $2,000). This is where the tax-free growth component becomes especially valuable. If you can afford to pay current medical bills out of pocket and let your HSA balance invest for years or decades, the compounding effect is substantial.
Some people treat their HSA as a long-term retirement account, paying today’s medical expenses from their checking account and letting HSA investments grow. There’s no rule requiring you to withdraw HSA funds in the same year you incur a medical expense. You can pay out of pocket now, save your receipts, and reimburse yourself from the HSA years later, tax-free.
How an HSA Works After 65
Once you turn 65, an HSA becomes even more flexible. You can still withdraw money tax-free for medical costs, including Medicare premiums (Part B, Part D, and Medicare Advantage, though not Medigap). For non-medical spending, withdrawals are taxed as regular income but carry no penalty, making the account function much like a traditional IRA at that point.
One important detail: once you enroll in Medicare, you can no longer contribute to your HSA. If you’re still working past 65 and haven’t signed up for Medicare, you can keep contributing as long as you remain on an HDHP. But the moment Medicare coverage begins, new contributions must stop. Any money already in the account is still yours to use whenever you need it.
How to Open an HSA
Many employers offer an HSA alongside their high-deductible health plan during open enrollment. Your contributions are deducted from your paycheck before taxes, and some employers deposit matching or seed contributions directly into the account. If your employer doesn’t offer one, or if you’re self-employed, you can open an HSA independently through banks, credit unions, or investment firms that serve as HSA custodians. You’ll then deduct contributions on your tax return.
When choosing a provider, compare monthly fees, investment options, and minimum balance requirements. Some charge a monthly maintenance fee of $2 to $5 that can eat into a small balance, while others waive fees entirely. If you plan to invest rather than just spend, look for a provider with low-cost index fund options rather than one that only offers a basic savings account.