Health Savings Account

What is a Health Savings Account?

A Health Savings Account (HSA) is an account created for people with High Deductible Health Plans (HDHPs) to save for medical expenses those plans don't cover, like costs before you meet your deductible.

Health Savings Accounts were created in 2003 so that people covered by a High Deductible Health Plan could save taxes on money set aside for medical expenses.

♦ An adult who is covered by an HDHP may set up an HSA.

♦ HSAs are sometimes called the only "triple tax advantage" account: money goes in tax-free, grows tax-free, and comes out tax-free when spent on qualified medical expenses.

How does an HSA work?

The Treasury Department and the IRS have published a number of documents to help consumers understand Health Savings Accounts.

IRS Publication 969, titled Health Savings Accounts and Other Tax-Favored Health Plans, explains many of the tax requirements related to an HSA.

Publication 969 can be downloaded from the IRS website.

Below are excerpts from Publication 969.

• A Health Savings Account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. You must be an eligible individual to qualify for an HSA.

• You don't need approval from the IRS to set up an HSA. You do need to set up an HSA with a trustee. A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs.

• The HSA can be set up through a trustee that's different from your health plan provider.

• Your employer may already have some information on HSA trustees in your area.

What are the benefits of an HSA?

HSA benefits you may receive:

• You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA, even if you don't itemize your deductions on Form 1040.
• Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
• The contributions stay in your account until you use them.
• The interest or other earnings on the money in the account are tax-free.
• Distributions may be tax-free if you pay for qualified medical expenses.
• The money in the account belongs to you, not your employer.
• The funds are portable. If you change jobs, the money stays yours.
• The funds can be used even after you retire. But you can't contribute any more money after you enroll in Medicare.

♦ If you take money out for something other than a qualified medical expense before age 65, you'll pay income tax on it plus a 20% penalty. After 65, there's no penalty, but you'll pay income tax on withdrawals not used for medical expenses, much like a traditional IRA.

HSA Rules

Qualifying for a Health Savings Account (HSA)

To be an eligible individual and qualify for an HSA, you must meet the following requirements.

♦ You must be covered under a High Deductible Health Plan (HDHP).

• In 2027, the HDHP must have a minimum annual deductible of:

$1,750 Individual — $3,500 Family.

• In 2027, the HDHP is allowed to have a maximum out-of-pocket of up to:

$8,700 Individual — $17,400 Family.

♦ In addition:

• You have no other health coverage except what's permitted under Other health coverage.
• You aren't enrolled in Medicare. You can contribute up to the first month you enroll in Medicare.
• You can't be claimed as a dependent on someone else's tax return.

♦ Working past 65? Be careful. If you sign up for Medicare after age 65, your Part A coverage usually starts up to 6 months earlier than the day you sign up. Stop HSA contributions at least 6 months before you apply for Medicare to avoid a tax penalty.

New in 2026

A 2025 tax law made HSAs available to more people:

• All bronze and catastrophic plans on the Marketplace now count as HSA-eligible.

• You can use HSA money to pay for a direct primary care membership, up to $150 a month for one person or $300 for a family.

• Your plan can cover telehealth visits before you meet your deductible, and you can still contribute to an HSA.

Other health coverage

You (and your spouse, if you have family coverage) generally can't have any other health coverage that isn't an HDHP.

However, you can still be an eligible individual even if your spouse has non-HDHP coverage, provided you aren't covered by that plan.

You can have additional insurance that provides benefits only for the following items:

• Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of property
• A specific disease or illness
• A fixed amount per day (or other period) of hospitalization

You can also have coverage (whether provided through insurance or otherwise) for the following items:

• Accidents
• Disability
• Dental care
• Vision care
• Long-term care

HSA contributions

Contributions to a Health Savings Account (HSA)

Any eligible individual can contribute to an HSA. For an employee's HSA, the employee, the employee's employer, or both may contribute to the employee's HSA in the same year.

• For an HSA set up by a self-employed (or unemployed) individual, the individual can contribute. Family members or any other person may also make contributions on behalf of an eligible individual.

Contributions to an HSA must be made in cash. Contributions of stock or property aren't allowed.

Contribute to both an HSA and an FSA?

In most cases, you can't contribute to both an HSA and a Flexible Spending Account (FSA) in the same year.

However, there's a special type of FSA called a limited-purpose FSA, which may let you contribute to both. These FSAs are limited to certain expenses, such as dental and vision costs.

♦ The FSA must be specifically designated as an "HSA-compatible FSA." If you're considering such an account, be sure to check with your employer and understand all the rules and limits.

HSA contribution limit

The amount you or anyone else can contribute to your HSA depends on the type of HDHP coverage you have, your age, the date you become an eligible individual, and the date you stop being an eligible individual.

♦ In 2027, if you have self-only HDHP coverage, you can contribute up to $4,500. If you have family HDHP coverage, you can contribute up to $9,000.

♦ HSA catch-up contributions remain at $1,000 for people 55 or older. Catch-up contributions can be made starting in the year you turn 55.

The IRS has a lot of rules when it comes to determining contribution limits. There are also rules for reporting HSAs on your taxes. You're encouraged to read Publication 969 in its entirety.

Please get professional help setting up your HSA and reviewing your situation.