An HSA can do more than pay medical bills. Learn how its tax benefits can help you cover health care costs and save for the future.

A Health Savings Account (HSA) lets you set aside pre-tax money for qualified medical expenses. You must be enrolled in a High-Deductible Health Plan (HDHP) to be eligible. 

Contributions are tax-deductible, funds grow tax-free, and withdrawals for qualified medical expenses are tax-free.

HSAs can help you save for future health care expenses. Unlike many employer-sponsored accounts, HSAs roll over from year to year, remain yours if you change jobs, and can be invested.

A Health Savings Account, or HSA, is a tax-advantaged account that helps you save for medical expenses using pre-tax dollars. It is available only to those enrolled in an HSA-eligible High-Deductible Health Plan, or HDHP. 

While many people use HSAs to cover current health care costs, they can also serve as long-term savings tools. This allows funds to grow over time and be used for medical expenses in retirement, when health care spending often increases.

Whether you are considering opening an HSA for the first time or already contributing to one, knowing the basics can help you get the most value out of your health coverage. 

Why HSAs Matter? 

HSAs offer major tax benefits: 

• Contributions reduce taxable income 
• Growth and investment earnings are tax-free 
• Withdrawals for qualified medical expenses are tax-free 

Despite these benefits, a recent Transamerica Institute survey found that only 22% of workers are saving for health care expenses in an HSA.¹ 

Learning how HSAs work can help you avoid unnecessary taxes, plan for medical costs, and make the most out of your health coverage. 

What does an HSA Cover? 

HSAs can be used for a wide range of IRS-approved medical expenses, including: 

Out-of-pocket medical costs 

• Deductibles 
• Copayments 
• Prescription medications 
• Doctor visits and certain mental health devices 
• Dental care 
• Eye care 

Over-the-counter health items 

• Medicine
• Sunscreen 
• Feminine hygiene products 
• Breast pumps and related supplies

Medical devices and supplies 

• Eyeglasses and contact lenses 
• Thermometers  
• Blood pressure monitors 
• Hearing aids

The IRS maintains a full list of eligible expenses that is helpful to review if you are checking whether a specific item qualifies.² 

You can also use your HSA funds for medical expenses collected by your spouse or any dependents, regardless of their coverage status under your HDHP.  

If you misuse HSA funds, there are tax consequences:  

• If you withdraw HSA money for non-qualified medical expenses before you turn 65, you must pay ordinary income tax plus a 20% penalty.²  
• Once you are 65 or older, you can withdraw HSA funds for non-qualified medical expenses without the 20% penalty. The withdrawal will still be subject to ordinary income tax.  

Who Can Open an HSA?

To open and contribute to an HSA, you must not be: 

• Enrolled in any other non-HSA-eligible health plan 
• Enrolled in Medicare 
• Claimed as a dependent on another individual’s tax return 

Additionally, you must be enrolled in an HSA-eligible HDHP.  

It’s important to note that HSA eligibility is determined on a monthly basis. If your health coverage changes during the year, such as enrolling in Medicare or Medicaid, your annual contribution limit may be prorated, which can lead to over-contribution penalties if not adjusted accordingly.

Once you know you’re eligible, you can open an HSA through your employer’s chosen HSA provider or independently through a bank, credit union, or financial institution that offers HSA accounts. To get started, you’ll typically complete a short application and link a bank account to make contributions, set up payroll deductions (if available), and begin using the account. 

What Qualifies as an HDHP? 

In 2026, a HDHP is any health insurance plan with the following deductibles and out-of-pocket maximums: 

• Individual coverage: Annual deductible of at least $1,700 and out-of-pocket maximum not exceeding $8,500 
• Family coverage: Annual deductible of at least $3,400 and out-of-pocket maximum not exceeding $17,000³ 

How Contributions Work? 

You (and possibly your employer) can contribute to your HSA up to the annual IRS limit. It’s important to note that any employer contributions count toward this maximum, which can sometimes lead to accidental overfunding if not carefully tracked. Many employers’ support savings by contributing a fixed amount or by offering wellness incentives to an HSA. 

HSAs are portable funds, meaning if you decide to leave your employer or change jobs or health plans, those funds are yours to keep. Contributions roll over annually, and unused balances can be invested to help build long-term health savings. 

HSA Contribution Limits 

The IRS sets annual contribution limits for HSAs. They typically change each year and are organized by individual and family coverage.  

2026 Limits: 

• Self-only coverage: Contributions up to $4,400 
• Family coverage: Contributions up to $8,750  

Adults aged 55 or older may contribute an additional $1,000 annually.⁴

If both spouses are 55 or older, each may contribute their own catch-up amount, but each contribution must go into separate HSAs. Understanding contribution rules like these is important because HSAs function differently from other health savings options, particularly Flexible Spending Accounts, or FSAs.

To better illustrate how these accounts compare and why choosing the right one matters for your financial and health care planning, the table below breaks down the key differences between HSAs and FSAs.

HSAs vs. FSAs 

What are Employer-Sponsored Accounts? 

Employer-sponsored accounts are financial benefits offered through your workplace to help you save for specific expenses, including health care and retirement. Common examples include FSAs, HSAs, and 401(k) retirement plans. With FSAs specifically, employers offer the account as part of their benefits package, and employees enroll, contribute through payroll deductions, and follow rules set by the employers, such as whether unused funds carry over or expire. 

Be Aware of Mistakes 

Be cautious about: 

• Using your HSA for non-qualified expenses 
• Contributing above the IRS limit 
• Assuming your plan is HSA-eligible without checking 
• Forgetting to keep receipts for medical expenses you pay with HSA funds: 
  • Receipts are essential for HSA reimbursement. You must be able to prove an expense was eligible if you paid out of pocket and plan to reimburse yourself later
  •  You can delay reimbursement and reimburse yourself years later, as long as the expense occurred after the HSA was opened 
  • Storing receipts digitally (in a secure folder, cloud storage, or your HSA provider’s app) keeps everything organized and accessible 

Take the Next Step

HSAs can seem complicated, but there are plenty of resources to help. Review the details of your health plan, confirm your eligibility, and familiarize yourself with IRS limits.  

You may want to check whether your HSA offers investment options, as investing a portion of your balance can help your savings grow over time. 

You can also talk with your employer’s benefits team or a professional financial advisor to make sure you are using your HSA in a way that supports both your health and long-term financial goals. 

1. Transamerica Institute. Life and Money: Retirement Security in the USA 2026. March 2025.  p.55 
   https://www.transamericainstitute.org/docs/research/retirement/life-money-report-2026.pdf?sfvrsn=b3249626_10
2. Internal Revenue Service. Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans. IRS. 2025. https://www.irs.gov/publications/p969#en_US_2024_publink1000204046
3. Internal Revenue Service. 26 CFR 601.602: Tax forms and instructions. IRS. May 2025. https://www.irs.gov/pub/irs-drop/rp-25-19.pdf
4. Choi, Alice Y.; Rosso, Ryan J. Health Savings Accounts (HSAs). Congress.gov. February 23, 2026. 
   https://www.congress.gov/crs-product/R45277