A health savings account (HSA) is a type of savings account that allows individuals to save money tax-free and use it to pay for qualified medical expenses. Understanding which medical costs can be paid with money saved in an HSA and which can't is essential to getting the most out of this savings account. For example, you can use your HSA balance for hospital bills, insulin treatment and vaccines but not for cosmetic surgery or weight loss programs.

Besides helping with medical costs, an HSA has tax-free contributions and growth. The same goes when withdrawing from your account for eligible expenses, giving you a three-pronged advantage for taxation. For 2023, you can contribute up to $3,850 if you have a self-only health care plan. Policyholders with family coverage can contribute as much as $7,750.

Not everyone with a health care plan can open an HSA — these accounts are only available to policyholders with high-deductible health plans (HDHP). Although these plans come with lower premiums, you'll have to pay more out-of-pocket before your health insurance carrier covers your medical expenses.

Benefits of a Health Savings Account

To fully understand what an HSA is, you need a clear picture of the benefits it offers. MoneyGeek provides various reasons why having a health savings account can be an asset, such as tax advantages and convenience.

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    Tax Advantages

    HSAs give account owners a triple-tax advantage. You use pre-tax dollars for your contributions, allowing you to deduct the amount from your taxable income. It also grows your money tax-free, and you don't pay tax on withdrawals for eligible medical expenses.

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    No Expiration Date on Funds

    You shouldn't feel pressured to use your HSA contributions unless you need them to cover qualified medical expenses. HSA funds don't expire, so your money stays in your account until you use it.

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    Possible Use for Spouse and Dependents

    Even if your high-deductible health plan has self-only coverage, you can still use your HSA funds to pay for your spouse or child's eligible medical expenses (as long as their expenses aren’t otherwise reimbursed).

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    Doesn't Go Away if You Change Jobs

    Your HSA is yours alone, although some employers may contribute. However, whatever funds are in your account remain with you even if you leave your job, regardless of the reason.

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    Convenient Use

    Some HSA providers issue debit cards, which you can use to pay for eligible medical expenses. Since the payment is withdrawn directly from your HSA account, you won't have to submit receipts to confirm or validate your purchase.

Eligibility Requirements

Not everyone with health insurance can have an HSA. The Internal Revenue Service has specific requirements that you must meet to contribute to an HSA account.

For example, among the different types of health insurance, only HDHPs allow you to open an HSA. You also generally cannot have other health coverage beyond the HDHP, except for insurance that covers things like workers’ compensation liability, specific illnesses or hospital stays.

On the other hand, the following items disqualify you from having a health savings account:

  • You have coverage from Medicare.
  • You are listed as a dependent on someone else's tax return.
  • Your spouse has an HDHP that covers you.
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The short answer is no — you don't need the IRS' permission to get a health savings account. Instead, you can go to a bank or insurance agency — most are qualified HSA trustees that have already been assessed by the IRS.

How to Open and Manage an HSA

If you’re considering an HSA, you must understand how it works and how to manage it. MoneyGeek walks you through the end-to-end process — from ensuring your eligibility to making contributions.


Check Your Eligibility

Just because you have a health insurance plan doesn't automatically mean you can open an HSA account. Remember, you need to have an HDHP to be eligible. You must also not be enrolled in Medicare or a health plan that isn’t HSA-eligible. Finally, no one can claim you as a dependent on their tax return.


Shop for Qualified HSA Providers

There's no lack of HSA providers available. For example, you can speak with your insurance provider or bank. Some employers offer HSA accounts as part of their benefits package — if yours does, you can also see if they can help you open one.


Choose Your HSA Provider

Like health insurance companies, different HSA providers have varying offerings. For example, some providers charge fees for opening, closing and maintaining the account. Don't forget to research and compare your options before deciding on a provider.


Invest Your HSA Funds

If you don't think you'll need your HSA funds in the next couple of years, investing your money into the market is a good strategy for faster growth. Discuss your options with your provider and see what investment vehicles are available.


Make Contributions

Once you've opened your HSA, it's time to put money into the account. You can do this by making regular contributions. Your provider may have various options, such as online transfers, check deposits or payroll deductions (if your employer offers them).

Contribution Rules and Limits

As long as you're qualified, you can contribute to your HSA account. If you're employed and your organization offers an HSA, you and your employer may contribute during the year. In addition, any other person can make contributions on your behalf. However, the same limit applies — once you reach it, you must wait for the next year to begin before contributing.

Remember, all HSA contributions must be in cash. You cannot use stock or properties to fund your account.

Each year, the IRS determines the maximum amount you can contribute to your HSA. The amount varies depending on the type of coverage you have and your age.

HSA Contribution Limits 2023
Self-Only Coverage
Family Coverage

HSA Contribution Limit per Year



HSA “Catch-up” Contribution (55 or Older) per Year



Tax Advantages of HSAs

You may have noticed several mentions of HSAs having many tax advantages. Knowing these is an integral part of understanding how you can benefit from an HSA.

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Here are the tax benefits you can enjoy if you have an HSA:

  • You can reduce your taxable income by deducting your HSA contributions. It applies to all funds contributed by anyone except your employer.
  • You don't have to itemize your contributions on Schedule A (Form 1040) to claim a tax deduction.
  • Whatever your HSA earns (from interest or investment gains) is tax-free.
  • Tax does not apply to withdrawals or distributions used for eligible medical expenses.

Eligible Medical Expenses

One of the advantages of opening an HSA is having a convenient tax-free savings vehicle to pay for various health care costs. However, knowing which medical expenses are eligible can help you avoid taxes and penalties.

Eligible Medical Expenses for HSA Funds

Penalties for Non-Medical Costs

Although you can use your HSA funds for non-medical expenses, you must be ready to pay penalties. These come in the form of federal income tax on the amount spent and an additional tax penalty if you're under 65.

Withdrawal Penalties for Non-qualified Use

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Withdrawal for Non-Qualified Use Before Age 65

  • Pay federal income tax on the amount withdrawn
  • Pay 20% tax penalty
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Withdrawal for Non-Qualified Use After Age 65

  • Pay federal income tax on the amount withdrawn
  • No 20% tax penalty

Health Savings Account FAQ

Opening a health savings account with your high-deductible health plan may be an effective way to manage your medical expenses. However, you may have other questions before deciding whether it's the right move for you. MoneyGeek included the answers to some commonly asked questions.

Expert Insights on Health Savings Accounts

MoneyGeek communicated with Certified Financial Planners and other finance professionals to provide more details about health savings accounts. Their insights on how they compare to other health care savings options can help you make the best financial decision for your situation.

  1. How does an HSA compare to other health care savings options, such as a flexible spending account (FSA) or a health reimbursement arrangement (HRA)?
  2. Is it advisable to have multiple health care savings accounts? Why or why not?
  3. What factors should you consider before deciding to open an HSA account?
Nate Black
Nate Black

Vice President for Consumer-Driven Health at Voya Financial

Kevin T. Taylor
Kevin T. Taylor

Managing Partner and Head of Business Development and Client Acquisition at InSight

Julina Ogilvie
Julina Ogilvie

Partner and Wealth Adviser at Principle Wealth Partners

Related Resources

A stronger understanding of health insurance can help you better grasp whether an HSA is a good choice for your needs. MoneyGeek included several resources regarding health coverage options.

About Angelique Cruz

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Angelique Cruz has been researching personal finance for three years, with expertise in macroeconomics, financial statistics and behavioral finance. After a decade-long stint as a management consultant creating professional and personal development programs, she now specializes in writing informative content around personal, auto and home loans. Angelique has a degree in psychology from the Ateneo de Manila University.