How an HSA Works

One way to make medical costs more manageable is through a health savings account, or HSA.

Health insurance premiums and medical bills can feel hard to control. But having an HSA, or health savings account, lets you save money on a pre-tax basis, then withdraw your money tax free to pay for health care costs.

Here’s what you need to know about eligibility, contributions and withdrawals.

Eligibility for HSA Accounts

In order to open and contribute to an HSA account, you must have a qualified high-deductible health plan (HDHP).

You can get your qualified plan through work or the health insurance marketplace, and you can open an HSA through your employer or on your own. You won’t lose your account if you’re laid off or change jobs.

You’re not eligible for an HSA if you’re enrolled in Medicare or if someone can claim you as a dependent on their tax return.

Contributions to an HSA

For 2025, the most you can contribute to your HSA is $4,300 if your plan only covers you, and $8,550 if it covers you and a spouse or dependent. Taxpayers 55 and older can each contribute an extra $1,000.

Withdrawals

You don’t have to spend all your HSA funds each year!

You can leave the money in your account indefinitely. You can also spend it in years when you don’t have a high-deductible plan.

If you withdraw the money for anything other than a qualified medical expense, you’ll owe income tax at your marginal rate. If you’re younger than 65, you’ll also owe a 20% penalty.

Long-Term HSA Planning

Some people invest HSA contributions they won’t need to withdraw for at least 10 years.

Why? An HSA is the only account with no taxes on contributions, no taxes on growth and no taxes on withdrawals used to pay qualified medical expenses—it’s a triple tax advantage.