What Is a Health Savings Account (HSA)?

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Key takeaways:

A health savings account (HSA) is a personal account that can cover qualifying healthcare costs and services.
HSAs have a triple tax advantage: Contributions, investment gains, and approved withdrawals are tax-free.
HSAs belong to you and don’t have yearly spending deadlines, unlike flexible spending accounts (FSAs).

A health savings account (HSA) is a means of covering healthcare expenses now and a savings vehicle that can help you cover both medical and non-medical expenses in retirement.

If you’re just getting started with HSAs, wrapping your brain around a new financial topic can seem daunting. But don't worry. We’ll break down the basics so you can start saving in no time.

What Is an HSA?

A health savings account (HSA) is a personal healthcare account that you fund and use to cover qualifying health products and services.

HSAs belong to (and are managed by) the account holder. So if you leave a job where you’ve contributed to an HSA, you can take it with you to your next position. It’s considered a portable account.

Who Is Eligible for an HSA?

To be eligible for an HSA, you must meet these requirements:

Be enrolled in a high-deductible health plan (HDHP) (Note: As of 2026, all Bronze and Catastrophic plans on the Affordable Care Act marketplace are treated as HSA-compatible even if they do not meet the requirements of an HDHP.)
Not be enrolled in another type of insurance plan, such as Medicare or traditional healthcare plans
Not be claimed as a dependent on someone else’s tax return

How Does an HSA Work?

Many people (61%) get access to HSAs through their employer. Once you enroll, you can make contributions to your HSA through payroll deductions. Some employers will even match your contributions.

You can also set up your own HSA if you’re self-employed.

You can use your HSA funds to cover qualifying health services and products—including for yourself, your spouse, and your tax dependents.

What Are the Benefits of an HSA?

Beyond covering healthcare expenses, HSAs have a triple tax advantage.

Here’s how it works:

HSA contributions are not taxed.
There’s no tax on interest earned or growth through investment.
There’s no tax on HSA withdrawals for qualified health expenses

If you’re enrolled in an HSA through your job and it’s funded through regular payroll deductions, your contributions will reduce your taxable income. If you contribute to your HSA with post-tax funds, you can deduct these contributions from your gross income on your tax return.

You can also invest HSA funds in stocks, mutual funds, or other assets—which can help you grow your savings at a much faster rate than interest alone. Any interest or investment income isn’t taxed.

Finally, you can withdraw HSA funds to cover qualified medical expenses without any tax penalty.

HSA funds roll over year to year, so any unspent funds will accumulate over time. You can withdraw these funds for non-medical expenses. But you’ll have to pay a 20% penalty on that amount plus payroll taxes.

What Are the HSA Contribution Limits?

The IRS determines HSA contribution limits, which often change from year to year.

For 2026, the HSA contribution limits are as follows:

$4,400 if you’re contributing to an HSA with individual coverage
$8,750 if you’re contributing to an HSA with family coverage

Most account holders typically have until April 15 of the following year to contribute to their HSA for the current tax year (for example, April 15, 2027 for the 2026 tax year).

Which Expenses Are HSA Eligible?

To be HSA eligible, products and services must fall under the IRS’s definition of “medical care” in IRS Tax Code 213(d):

The term “medical care” means amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.

Examples of HSA eligible expenses include:

Prescription medicines
Doctor’s copayments and specialist visits
Dental/vision expenses
Prescription eyeglasses and contact lenses
Over-the-counter medicines
Menstrual care products
First aid supplies
Medical diagnostic products (for example, blood pressure monitors)
Home health care items
Exercise recovery and pain relief
Telehealth services

You can see a comprehensive list of qualified HSA expenses here.

How Does HSA Reimbursement Work?

HSA reimbursement is pretty straightforward: You pay for qualified expenses out of pocket and then pay yourself back with funds from your account.

Keep in mind that you don’t need to reimburse yourself right away. You can do it months or years later as long as you keep receipts from your purchases, and as long as the expense happened after you opened your HSA. The Expense Tracker App™ can help you store receipts for future reimbursement.

Waiting to reimburse yourself also allows your funds to grow tax-free.

Using Your HSA in Retirement

Once you reach age 55, you can add a “catch up” contribution, which allows you to add up to $1,000 to your HSA above the yearly contribution limit.

Once you reach Medicare eligibility at age 65, there’s still no tax on withdrawals for qualified medical expenses. Withdrawals for non-medical expenses are taxed as income, but the 20% tax penalty is waived.

If you’ve been diligently saving, an HSA can provide a massive supplement to traditional retirement savings accounts to bolster your long-term savings potential.

What’s the Difference Between an HSA and an FSA?

HSAs and FSAs are both tax-advantaged accounts that you can use to pay for qualified medical expenses.

The main differences between them are:

You must be enrolled in a high-deductible health plan (HDHP) to open an HSA. You don’t need to be enrolled in a health plan to open an FSA.
HSA accounts belong to you and can be used with different employers. FSAs are tied to the employer you open the account with.
HSA funds roll over from year to year, while FSA funds are “use-it-or-lose it” each year.

In Summary

In a world of ever-rising healthcare costs and economic uncertainty, your HSA is an invaluable asset.

You can use it to cover healthcare expenses without dipping into your regular savings. And you can invest your funds, earn tax-free interest, and use the money in retirement.

Ready to take the next step? Our Learning Center is your one-stop shop for everything HSA—whether you just enrolled or you’re a seasoned pro.

FAQs

Can I have more than one HSA at a time?

Yes. Individuals and families can have more than one HSA at once (as long as they don’t exceed the yearly contribution limit for either account).

You could theoretically use one HSA to cover health costs and the other primarily for investing.

Can I use my HSA for dental and vision costs?

Yes, you can use your HSA for dentist and optometrist visits as well as oral and eye care products.

What happens to unused HSA funds at the end of the year?

Any HSA funds you don’t use will roll over into the next year. This is different from an FSA, which usually requires you to spend all your funds within a calendar year.

Can I contribute to an HSA if I’m self-employed?

Absolutely. You can open an HSA if you’re self-employed, make contributions, and take advantage of all the benefits of an HSA.

Just keep in mind that you’ll need to be enrolled in an HSA-qualified high-deductible health plan to open an account. And you’l need to track your contributions so you can claim them as a deduction on your tax return.