What is HSA?
A Health Savings Account (HSA) is a type of personal savings account. HSA’s are tax-advantaged accounts that allow you to set aside money for healthcare expenses. Like other savings accounts, HSAs can also earn interest. Your HSA is a way for you to set aside money for medical expenses, and save money while doing so.
How does an HSA work?
HSA-eligible health plans work together with HSAs to help you contribute to your account. Typically, HSA-eligible plans are High Deductible Health Plans (HDHP). Low Deductible Health Plans are usually not eligible for Health Savings Account.
When can you contribute to an HSA?
If you’re enrolled in an eligible HDHP plan, you can make pre-tax contributions to an HSA. These funds can be spent on qualifying health expenses tax-free. However, there are some cases in which you aren’t able to contribute towards an HSA. You can contribute to an HSA if:
- You’re not enrolled in your spouses or parents health plan that is not an HSA-eligible health plan.
- You’re not enrolled in Medicare.
- You cannot be claimed as a dependent on someone else’s tax return.
HSA investments roll over year-to-year. If you do not need to use your funds, you can save and invest HSA money for when you do. Typically, you contribute to your HSA through self contributions or payroll deduction. Contributions through payroll deduction avoid more taxes, and is generally recommended. Some employers will even match contributions made through payroll deduction, up to a certain amount.
Who can contribute to an HSA?
Anyone can contribute to an HSA. This includes:
- Yourself
- Your employer
- Family members
- Friends & other individuals
Contributions must be made in cash. Stocks or property investments are not accepted contributions. Any contributions outside of payroll deductions are after-tax contributions, however that money still grows tax-free.
What can an HSA pay for?
Your HSA can be used to pay for a large variety of qualified medical expenses. Most payments for your deductible and any co-pays and co-insurances are HSA eligible. Other qualifying expenses include:
- Doctors visits
- Prescriptions & over-the-counter drugs
- first aid supplies
- feminine hygiene products
- addiction treatments
- fertility, pregnancy, maternity services
- vision care
- health expenses of individuals listed as a dependent on your taxes
As a general rule, HSAs are used to pay for health services. Anything to treat or prevent illness, promote health, or care for family qualifies for HSA payments. You will be penalized for use of HSA funds for unqualified expenses. A complete list of eligible expenses can be found on irs.gov.
HSA contribution limits
Every year, the IRS sets a maximum that can be contributed to an HSA in a year. This amount often increases each year. Contributing to an HSA early and consistently helps you be ready for larger, sometimes unexpected medical expenses. Even for those in good health, HSA contributions are highly recommended.
The contribution limit for 2025 is being increased to $4,300 for individuals and $8,550 for families.
Regardless of who contributes to the HSA, all contributions count towards the limit. As soon as HSA contributions total the set limit, no more contributions can be received that year.
How can I use my HSA funds?
Most often, you will receive a debit card or checkbook that you can use to directly pay for medical expenses. However, there are other way you may be directed to use your HSA funds. One example is reimbursement from your HSA account to your bank account for qualified expenses you have already paid. Your employer or the company you have your HSA account with can give you your account details.
More to know about HSA benefits
Here’s more about what you need to know about the financial advantages of HSAs.
HSAs are not “use-it-or-lose-it” funds. Any money left in the account by the years end rolls over to the next year. None of your contributions to an HSA will be forfeit. Your account will also compound interest. This means that your HSA is a great way to invest funds for unexpected medical expenses.
Your HSA belongs to you. An HSA, even if provided by your employer, belongs to you, not your employer. You take your HSA and all contributed funds with you when you leave your job or health insurance. If your new job offers an HSA, you can transfer funds to the new HSA. You may also have multiple HSAs, if you would like. If you are in an HSA-eligible plan, but your employer does not provide one, you can open one for yourself.
You can have an HSA and an Flexible Spending Account. HSA holders can have a limited-purpose FSA to pay for qualified expenses associated with dental and vision care. Doing so allows you to invest in your HSA while still paying for some immediate medical expenses. However, your employer must allow for the limited-purpose FSA.
After age 65, there is no penalty for using HSA money for non-qualified medical expenses. Usually, you face a 20% penalty for funds used on unqualified medical expenses. Once you turn 65, you can use HSA funds on non-qualified medical expenses. However, you will pay income tax on those funds, similar to 401k’s or IRAs.
How to open an HSA
1. Check if your plan is HSA-eligible. Not all health plans are HSA-eligible, so this first step is important. You can check with your employer or plan provider to determine if your plan is eligible. If you are not, fill out our form and let us help you find a qualifying health plan.
2: Pick an HSA provider. Some HSAs offer things like low-cost funds or automated investing options. Some providers also have varying fees. While HSAs have similar tax advantages they offer, the specific features available at different providers vary. Comparing providers is the best way to get an HSA right for you. You can always change providers later if you feel your current is not right for you.
3: Invest in your HSA. That’s what it is there for. The more you invest, the more you save, accrue and can use in the future. An HSA is a great benefit to have. Investing in your HSA is investing in your health and future.
