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A health savings account (HSA) is a savings account that lets you set aside pretax money for medical costs. It's handy to save for health care expenses and reduce your taxable income.
But not everyone can — or should — sign up for the kind of health insurance plan required to use an HSA. Here's how HSAs work and how they can benefit you.
Qualifying for an HSA
To save to an HSA, you must have a high-deductible health insurance plan (HDHP), as defined by the government. High-deductible health plans are redefined each year by the IRS, which determines the minimum deductible and the maximum amount a plan holder can spend out of pocket.
For example, in 2026, an HDHP must have a deductible of at least $1,700 for an individual or $3,400 for a family, with a maximum out-of-pocket cap of no more than $8,500 for an individual or $17,000 for a family.
Bear in mind that some plans have high deductibles but don't qualify you for an HSA. Look for plans specifically tagged "HSA-eligible" if you want the account option.
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How an HSA works
Some employers that offer high-deductible health plans also offer HSAs. If yours doesn't, you can open a separate HSA if you have a qualifying plan.
HSA contribution limits
Each year, you decide how much to contribute to your HSA, though you can't exceed government-mandated maximums. In 2026, the caps on HSA contributions for people with HDHPs are $4,400 for an individual or $8,750 for a family.
If you have an HSA through your workplace, you can set up automatic contributions directly from payroll. You'll receive a debit card or checks linked to your HSA balance, and you can use the funds on eligible medical expenses.
HSA vs. FSA
Unlike a flexible spending account (FSA), your HSA balance rolls over from year to year, so you never have to worry about losing your savings. Once you're over age 65 and enrolled in Medicare, you can no longer contribute to an HSA but still use the money for out-of-pocket medical expenses. However, if you use the money on non-eligible expenses, you'll have to pay income tax on that amount (plus a 20% penalty if you're under 65).
HSA-eligible items and expenses
HSA funds can cover deductibles, copays and coinsurance, over-the-counter drugs, feminine hygiene products and other qualified medical expenses not covered by your plan.
Usually, insurance premiums can't be paid for with HSA funds. However, you can use HSA money to pay for health coverage purchased under COBRA or pay health insurance premiums if you're getting unemployment payments. In addition, if you're on Medicare, you can use HSA funds to pay premiums for Part B and Part D coverage. And at age 65 and older, you can use HSA money to cover premiums for employer-sponsored health care, if applicable.
Advantages of Health Savings Accounts
HSAs have notable tax benefits.
Contributions are tax-free
HSA contributions are either pretax (if through an employer) or tax-deductible (if you make your own contributions). Therefore, every dollar you save to an HSA is one less dollar you'll be taxed on. So, for example, if you make $40,000 per year and put $3,000 in your HSA, you'll be taxed as though you make $37,000, thus lowering your tax burden.
Account growth is tax-free
Your HSA money can be invested in mutual funds, stocks and other investment tools. Different companies can help you do this, depending on your investing preferences. If you plan to invest your HSA balance, find an HSA custodian that allows investing and offers low-fee investment options.
Withdrawals are tax-free
As long as you use your HSA money for eligible medical expenses, you'll pay no taxes on withdrawals.
Your employer can contribute
As with a 401(k) plan, an employer may choose to put funds toward eligible employees' HSAs. However, unlike a 401(k), this money usually requires no matching employee contribution. About three-quarters of employers offer this benefit, and the contribution counts toward employees' contribution cap.
Disadvantages of Health Savings Accounts
As a savings tool, HSAs have a lot of perks. But there's one big caveat.
You must have a high-deductible health plan
An HDHP requires that you have the financial resources to manage a large deductible before insurance starts paying for covered health care. You pay all medical costs out of pocket until you meet that deductible. If that's not in your budget, an HDHP (and accompanying HSA) may not be the right option for you.
When deciding whether to save to an HSA, consider your health care needs first and your savings and investment needs second. If you're choosing an HDHP for your health care, an HSA can be a valuable financial tool.
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- 1. IRS. Revenue Procedure 2025-19. Accessed Jan 14, 2026.
- 2. Centers for Medicare & Medicaid Services. What's a Health Savings Account?. Accessed Apr 3, 2025.
