What Is an HSA?

What Is a Health Savings Account?

An HSA is a tax-advantaged savings account you can use to pay for certain medical expenses. You contribute money to the account and can use the funds for eligible health care costs, such as doctor visits, dental care, eyeglasses, prescription medications and more. Some HSAs also allow you to invest the money in your account.

Be aware: HSAs are only available if you're enrolled in an eligible HDHP. Some employers offer HSAs to employees. You can also open an HSA yourself with a financial institution that administers them.

How Does an HSA Work?

You and your employer can contribute money to your HSA up to IRS limits. You can then withdraw the funds tax-free to pay for eligible medical expenses. Some HSAs provide a debit card or checks you can use for this purpose; others reimburse you after the fact.

At the end of the year, any unused funds in your HSA roll over and can be used in the future. HSAs are also portable, which means the funds remain yours even if you have an employer-provided plan and leave your job.

Can You Invest In Your HSA?

Depending on where you open an account, you may be able to invest the money in your HSA. An HSA can even become part of your retirement savings plan: After age 65, you can use HSA funds for any purpose without a penalty. (However, you'll pay income tax on those withdrawals.)

HSAs offer a triple tax advantage:

1. Your contributions reduce your taxable income
2. Interest or investment gains within your HSA are tax-free
3. Withdrawals for qualified medical expenses are tax-free

Be aware: If you use money from your HSA for a non-qualified expense, you'll have to pay income taxes on it. If you're under 65, you'll also pay a 20% penalty.

Learn more: What Is a High-Deductible Health Plan?

What Can an HSA Be Used For?

You can use an HSA for qualified medical expenses that you, your spouse and your dependents incur. Qualified medical expenses are defined by the IRS.

Common eligible expenses include:

• Doctor and specialist visits
• Prescription medications
• Dental treatments (including fillings and cleanings)
• Vision care (eye exams, glasses, contacts)
• Mental health services
• Chiropractic care
• Certain medical equipment and supplies

Qualified medical expenses for an HSA are generally the same as the medical and dental expenses that qualify for an itemizable tax deduction. For specifics on what qualifies, see IRS Publication 502.

Learn more: What Can You Purchase With HSA Funds?

Who Qualifies for an HSA?

To qualify for an HSA, you must meet these four criteria:

1. Be enrolled in an eligible HDHP
2. Have no other disqualifying health coverage (there are exceptions for special types of insurance, such as disability, dental, vision and long-term care).
3. Not be enrolled in Medicare
4. Not be claimed as a dependent on anyone else's tax returns

An HDHP is an insurance plan that has relatively lower premiums and a high deductible. Plans must meet certain limits to qualify as HDHPs. For calendar year 2026, an HDHP has:

• An annual deductible not less than $1,700 for self-only coverage or $3,400 for family coverage, and
• Annual out-of-pocket expenses not exceeding $8,500 for self-only coverage or $17,000 for family coverage. Most health plans provide estimates of your annual out-of-pocket expenses, which include deductibles, copays and other costs, but not premiums.

As of January 1, 2026, all Bronze and Catastrophic plans purchased on the Affordable Care Act Marketplace or directly through an insurance company qualify for HSAs, regardless of whether they fit the IRS definition of an HDHP.

You may be eligible for an HSA if your spouse has a non-HDHP plan, as long as you aren't enrolled in their plan.

Learn more: Should You Get a High-Deductible Health Plan?

HSA Contribution Limits

The IRS sets limits on how much you can contribute to your HSA each calendar year. These caps can change from one year to the next. Employer contributions count toward your annual limit.

Source: IRS

FSA vs. HSA

Your employer may offer a flexible spending account (FSA), another kind of tax-advantaged savings account that's similar to an HSA but has distinct differences.

Pros and Cons of HSA Plans

An HSA can be a valuable tool, but it's not right for everyone.

Learn more: Mistakes to Avoid When Using an HSA for Retirement

Can a Health Savings Account Affect Your Credit Score?

Like other savings accounts and investment accounts, an HSA won't directly impact your credit scores. Your credit report does not include these accounts or their balances. However, unpaid medical debt over $500 can damage your credit if your account is sold to collections and you don't pay the bill within 365 days after the date it first became delinquent.

Using HSA funds to cover medical expenses could help you avoid medical debt that might affect your credit. If the HDHP is more affordable than other health insurance options when premiums and deductibles are considered, it could also free up money in your budget. That could make it easier to pay your bills and benefit your finances overall.

Is an HSA Worth It?

Whether an HSA makes sense for you depends on how much medical care you use and how comfortable you are with deductible risk. An HSA may be worth considering if:

• You're generally healthy. For those who rarely visit the doctor or take prescription medications, the lower premiums of an HDHP can outweigh the high deductible.
• You can afford a higher deductible. You should be able to cover the high deductible easily if an unexpected medical expense arises.
• You want additional tax-advantaged savings. HSAs offer tax-deductible contributions, tax-free growth and tax-free withdrawals for qualified medical expenses.
• You plan to use the account as a long-term investment tool. Covering current medical expenses out of pocket and letting your HSA grow can generate savings to help pay your healthcare costs in retirement.
• You can afford to contribute regularly. The more you put into your HSA, the larger the tax benefit.

An HSA may be less appealing if:

• You have high medical costs. If you expect significant medical expenses, a lower-deductible health plan might be more affordable than an HDHP.
• You live paycheck to paycheck. Meeting a high deductible could cause financial stress that may outweigh any tax savings from an HSA.
• You prefer predictable out-of-pocket costs. Some people don't want the risk of potentially large medical bills.
• You can't afford to contribute regularly. Sporadic contributions limit your HSA's growth potential.

To calculate potential net gain or loss from an HSA, compare total annual health plan costs (premiums plus out-of-pocket expenses) for an HDHP and a lower-deductible plan. Multiply your expected annual HSA contribution by your marginal tax rate to estimate your potential tax savings. Also consider any employer contribution.

Example: An HDHP saves you $1,200 per year in premiums compared to a traditional plan. You contribute $3,000 to your HSA and are in the 22% tax bracket, saving about $660 in federal taxes. Even if you spend $800 more out of pocket, you could still come out $1,060 ahead (($1,200 + $660) − $800).

How to Open a Health Savings Account

If an HSA sounds like a smart move for you, follow these steps to open one.

1. Confirm you're eligible. Make sure your health insurance plan meets IRS HDHP standards for the current year.
2. Investigate HSA options. Many employers that offer HSAs also contribute to their employees' accounts, which can boost your savings. If your employer doesn't offer a plan, see if your health insurance company partners with any HSA providers. You can also open an HSA through banks, credit unions or brokerage firms that offer them.
3. Compare HSAs and choose a plan. When comparing HSAs, consider investment options, any fees for the account and convenience features such as online banking or access to your HSA via debit card.
4. Complete an application. You can generally do this online or in person. In addition to personal information such as contact details, you'll typically need your Social Security number, proof of HDHP coverage and beneficiary information including Social Security number and birthdate.
5. Fund your account. You'll fund an employer-provided HSA through payroll deductions. Accounts with other financial institutions can typically be funded by bank transfers, so have your bank routing and account numbers ready.
6. Make investment selections. If your HSA allows investing, choose from the options provided.
7. Start using your HSA funds. Whether you use an HSA-provided debit card for medical expenses or get reimbursed, it's a good idea to keep receipts and records of qualifying expenses for your taxes.

Frequently Asked Questions

Plan for Future Financial Health

If you have access to an HDHP and it makes financial sense for your household, an HSA could be a valuable tool for covering the cost of future medical care or even helping fund your retirement. As you evaluate your options, consider how an HSA could complement your overall financial plan.

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