What’s an HSA?

[Updated article; original publish date 8/10/21]

Who’s eligible to use an HSA?¹

You can only contribute to an HSA if you’re in a high-deductible health plan (HDHP). As the name suggests, these plans have higher deductibles but usually lower monthly premiums than other health insurance options. If your employer gives you a choice of plans, an HDHP may make sense if you’re healthy and not anticipating large medical expenses. For 2026, the minimum annual deductible for HDHPs is $1,700 for individuals ($3,400 for families), and the maximum out-of-pocket costs are $8,500 for individuals ($17,000 for families).  

A few other factors can affect your eligibility. In general, you can’t contribute to an HSA if you:

• Have certain other health coverage in addition to your HDHP
• Are enrolled in Medicare
• Can be claimed as a dependent on someone else’s tax return

What are the tax advantages of an HSA?  

HSAs are popular because they offer a triple tax advantage.

1 You don’t pay taxes on the money you put into your HSA

2 Any potential earnings on your money grow tax free

3 You can take money out tax free as long as it’s used to pay qualified medical expenses

If you use the money for something other than qualified medical expenses, you may have to pay taxes on the amount you took out, plus a 20% penalty if you’re under age 65.   

How do you contribute to an HSA?   

An HSA offered through your employer works just like a retirement savings account. You choose an amount to save that fits your budget. Then, each pay period, this amount is automatically taken out of your paycheck and sent directly to your HSA. Your employer may also contribute, helping you build your savings faster.

You can keep the money in your HSA as cash savings, or you may be able to invest it, depending on how your account works. Some HSAs let you invest in mutual funds and other investments to help give your money a chance to grow.

How much can you contribute to an HSA?¹

There’s a limit to how much you can add to an HSA each year. In 2026, the limit is $4,400 for individuals and $8,750 for a family. This limit includes both your contributions and any money your employer adds. For example, if your employer contributes $1,000, you can only contribute $3,400. It also applies to all your HSAs combined if you happen to have more than one. 

If you’re age 55 or older, your limit is slightly higher. You can contribute an additional $1,000 as a catch-up contribution. 

What are qualified medical expenses?

Qualified medical expenses are specific expenses that the IRS lets you pay for with your HSA. The list includes co-payments, medical supplies, prescriptions, eyeglasses, and more. Be sure to check with your HSA provider if you’re not sure if a particular expense qualifies. You don’t want to find out after the fact that it doesn’t qualify and have to pay taxes on the money you took out of your account.    

How can you access your HSA to pay qualified medical expenses?

Accessing your money to pay qualified medical expenses is relatively easy. Most HSA providers offer debit cards and online bill pay. Some may also provide checkbooks linked directly to your account. If you pay for an expense yourself, you can submit a claim form to get reimbursed. Since every HSA provider is different, you’ll want to check with yours to see which payment options are available.     

Do you have to use all the money in your HSA by the end of the year?

No, HSAs aren’t use it or lose it accounts. Any money that’s in your account at the end of the year rolls over to the following year. You might choose to save more than you’ll need each year to help build a long-term savings account for future medical expenses.

What happens to your HSA when you leave your employer or retire?

Your HSA is yours to keep, even if you change jobs or retire. You can keep contributing to it until age 65 (when you become eligible for Medicare), as long as you’re still covered by an HDHP. You can’t contribute if you switch to a non-HDHP option. 

What if your employer doesn’t offer an HDHP?

If your employer doesn’t offer an HDHP, you may be able to enroll in one offered by a financial services company. Once enrolled, you can contribute money directly to an HSA and write these contributions off as a tax deduction when you file your taxes.   

Is an HSA right for you?

Your decision to enroll in an HSA depends on many factors, including your healthcare needs, financial situation, and whether you think the potential benefits outweigh the drawbacks. 

Take time to consider these factors and talk through your options with your employer, insurance professional, or healthcare provider. And remember, you’re not locked into your healthcare coverage. Even if an HSA doesn’t make sense now, it could down the road if your circumstances change.