Written by Theresa Stevens

Edited by Rebecca Stropoli and Ali Cybulski

Updated on 03/01/2025

A health savings account is a tax-advantaged way to save for your health care needs. Whether you want to pay for medical expenses now or in the future, the account can be a valuable tool. Learn more about health savings accounts below, including what they are and the benefits and disadvantages.

What is a health savings account?

A health savings account (HSA) is a tax-advantaged account you can use to pay for qualified medical expenses, including doctor’s visits, dental exams, prescriptions and more. HSAs are popular because of their tax benefits — the accounts are funded with pretax dollars, which helps reduce your taxable income. Additionally, unlike other tax-advantaged accounts such as 401(k) plans, you don’t pay taxes on HSA earnings or withdrawals as long as the money you withdraw is for qualified medical expenses.

Many HSAs provide a debit card linked directly to your account, allowing you to easily pay for medical expenses as needed. You can think of an HSA as your personal health care savings account.

Health savings account benefits

• Save money on taxes: Contributing to an HSA can help lower your tax bill. Because HSAs are funded from your pretax income, they reduce your taxable income, which in turn lowers the amount of taxes you owe.
• Take it wherever you go: Your HSA is portable. That means you won’t lose your savings if you leave your current employer or switch health policies. HSAs can even follow you into your retirement years.
• Roll over funds: Unlike other accounts, such as flexible spending accounts (FSAs), HSA funds carry over from year to year. In other words, HSAs don’t follow the “use it or lose it” principle. The rollover rule applies to both funds you contribute and any money your employer contributes on your behalf.
• Use it for various health care expenses: You can use HSA funds to pay for many types of medical expenses, including office visits, lab tests, dental procedures and even over-the-counter medicines. You generally can’t use an HSA to pay for health insurance premiums. However, there are some exceptions, such as COBRA and long-term care insurance premiums.

Health savings account disadvantages

• Not everyone qualifies for an HSA: Only people with a high-deductible health plan (HDHP) are eligible to contribute to an HSA. However, just because you have an HDHP doesn’t mean you automatically qualify. For 2024, your health plan must have an annual deductible of at least $1,600 for self-only coverage or $3,200 for family coverage to get an HSA. These amounts vary from year to year.
• There are limits to how much you can contribute: You’ll have to be careful not to exceed the HSA annual contribution limits, which are set by the IRS and usually change every year. The limits for 2024 are $4,150 for self-only coverage and $8,300 for family coverage. People age 55 or older can contribute an additional $1,000 per year.
• You may face penalties and fees: If you withdraw funds for nonqualifying expenses before age 65, you must pay a 20% penalty plus any applicable income taxes. If you're 65 or older, you can use HSA money for nonqualifying expenses without a penalty, but you’ll still need to pay income taxes. Additionally, some HSAs may charge monthly maintenance fees.
• You may have more out-of-pocket health care expenses: To qualify for an HSA, you must choose a high-deductible health plan, which means you must pay a certain amount of your health care costs yourself before most of your insurance coverage kicks in. For example, if your plan has a $2,000 deductible, you’ll need to pay $2,000 from your pocket before your policy covers most services.

Should you get a health savings account?

Health savings accounts can be a great tool to help people with high-deductible health plans afford their everyday medical expenses. HSAs can also be a tax-advantaged way to save for health care expenses in retirement. Just keep in mind that once you enroll in Medicare, you can no longer contribute to an HSA, but you can still use the funds in the account to pay for eligible medical bills.

You should generally get an HSA only if you plan to use it for medical expenses. Be aware that you may have more out-of-pocket expenses before you meet your deductible.

How to open a health savings account

1. Enroll in a high-deductible health plan: You’ll need to purchase a high-deductible health insurance policy before opening an HSA. Note that an HDHP may result in less coverage before you meet the deductible. You can enroll in an HDHP through your employer or your state’s insurance marketplace. You can also search for HSA-eligible plans through the federal insurance marketplace Healthcare.gov.
2. Choose where to open the HSA: This step is done for you if you have an HSA through your employer. Opening an account independently involves the extra step of choosing an HSA provider. Don’t worry — many options are available. HSAs are typically offered by brokerage firms, including Fidelity and Vanguard.
3. Contribute and invest: After you get an HSA, it’s time to put some money into it. If your HSA is through an employer, contributions are typically deducted from your paycheck in the amount you choose. If you open one independently, you can set up bank transfers from your checking account to your HSA. If you want to invest your HSA money instead of keeping it in cash, you will need to take the extra step of choosing an investment, such as a mutual fund.

Health savings account alternatives

While an HSA is a common way to save for medical costs, it isn’t the only option. Here are some alternatives to consider:

• Flexible spending account (FSA): Like an HSA, an FSA allows you to set aside pretax dollars for qualified medical expenses. One key difference is that FSAs are available to individuals with low-deductible health plans. Another difference is that FSAs typically have a use-it-or-lose-it rule, meaning you must use the funds before the end of the year, or they will expire.
• Health reimbursement account (HRA): This account, unlike HSAs and FSAs, is entirely employer-funded. The money in an HRA typically doesn’t expire at the end of the year. However, you forfeit the money if you leave your job or switch health plans.
• Regular savings account: If you don’t qualify for the above options, you could open a high-yield savings account at a bank to stash money for health-related expenses. Keep in mind that this option won’t have tax benefits. However, you will have more flexibility with what you can use the money for and won’t have to worry about the funds expiring.

Frequently asked questions

Who can contribute to a health savings account?

Only people with high-deductible health plans can contribute to HSAs. If you have an HSA through your employer, both you and your employer can contribute. If you open an HSA independently — outside of an employer — contributions can come from multiple sources, including you, family members and friends.

Do health savings accounts roll over?

Yes, the money in health savings accounts rolls over from year to year, giving you more time to use the funds or save them for retirement. When December comes around, you don’t need to rush to spend the money in your HSA before the new year begins.

Is a health savings account an investment account?

A health savings account can function as an investment account. You can invest the funds in your HSA, just as you would with a 401(k) retirement plan, by choosing options such as mutual funds or exchange-traded funds (ETFs).