Understanding Health Savings Accounts (HSA)
HSA Benefits and How They Work
A Health Savings Account (HSA) is a special savings account you can use to pay for medical expenses tax-free. It’s only available if you’re enrolled in a high-deductible health plan (HDHP). Contributions to an HSA aren’t taxed, the money can grow tax-free, and qualified withdrawals for healthcare costs are also tax-free.
To qualify, you must:
- Be covered under an HSA-eligible HDHP (in 2025, that means a deductible of at least $1,650 for individuals or $3,300 for families).
- Not be enrolled in Medicare.
- Not be claimed as a dependent on someone else’s tax return.
What is an HSA?
Triple Tax Advantage
HSAs are powerful because of their tax benefits:
- Contributions are tax-deductible (or pre-tax if through payroll).
- Growth inside the account is tax-free.
- Withdrawals for eligible medical expenses are tax-free.
HSA Benefits and Rules
Contribution Limits
For 2025, you can contribute up to
$4,300 for an individual HDHP or
$8,550 for a family HDHP. If you’re 55 or older, you can add an extra
$1,000 “catch-up” contribution.
Using the Funds
HSA funds roll over year to year (no “use it or lose it”), and the account stays with you if you change jobs or health plans. You can spend the money on a wide range of IRS-approved expenses, including doctor visits, medications, dental care, and vision. Some providers even allow you to invest your HSA balance for long-term growth.
Flexibility Over Time
After age 65, you can use HSA funds for non-medical expenses without penalty (though you’ll owe income tax, just like an IRA). This makes HSAs a valuable tool not only for healthcare today, but also for retirement planning.
Healthy Individuals
If you rarely use medical care, an HDHP paired with an HSA may save you money through lower premiums while you grow savings for future needs.
Who Can Benefit from an HSA?
Families
Family coverage comes with higher contribution limits, and HSA funds can be used for your spouse and dependents—even if they’re on a different plan. This makes it a flexible option for households with varied healthcare needs.
Near Retirement
Maxing out an HSA in your last working years is a smart move. Funds can cover healthcare in retirement, including Medicare premiums (though not Medigap). Couples 55 and older can each make catch-up contributions if they have separate HSAs.
Cautionary Note
If you have frequent or high medical expenses, the higher deductible of an HDHP may be difficult. It’s important to weigh whether the lower premiums and HSA savings outweigh potential out-of-pocket costs.
Singles
Treat your HSA like a “medical IRA”—contribute steadily and let the money grow tax-free for future needs.
HSA Tips for Different Situations
Families
Use your HSA for predictable expenses like braces, glasses, or prescriptions while still saving long-term.
Near Retirement
Contribute as much as possible in your final working years. Remember, after 65 you can spend HSA funds on Medicare premiums or other retirement healthcare costs without penalty.
FAQs
Health Savings Accounts
What expenses can I pay with my HSA?
Doctor visits, prescriptions, dental care, vision, over-the-counter medications, and many more healthcare services. The IRS maintains a full list in Publication 502.
Can I use my HSA for my spouse or kids’ medical bills?
Yes. Your HSA can cover qualified expenses for your spouse or dependents, even if they aren’t on your HDHP.
What happens to my HSA money if I don’t use it?
It rolls over year to year and remains yours, even if you change jobs or insurance plans. If you never use it, you can pass it on to a beneficiary.
How do HSA contributions affect my taxes?
Contributions lower your taxable income. Growth inside the account is tax-free, and qualified withdrawals aren’t taxed—a triple tax benefit.
Is an HSA the same as an FSA?
No. FSAs are employer-owned with “use it or lose it” rules, while HSAs are individually owned, roll over indefinitely, and require an HDHP.
Can I have an HSA if I’m self-employed?
Yes. As long as you have an HSA-eligible health plan, you can open and contribute to an HSA independently.