How Health Savings Accounts (HSAs) Work

The triple tax advantage

A Health Savings Account is the most tax-advantaged account in the U.S. code: contributions are tax-deductible, the money grows tax-free, and withdrawals for qualified medical expenses are tax-free. No other account gives you all three.

To contribute, you must be enrolled in an HSA-eligible High-Deductible Health Plan (HDHP) and meet a few IRS rules — notably, you cannot contribute once you enroll in Medicare. Annual contribution limits are set by the IRS and rise slightly each year, with an extra catch-up amount allowed at age 55 and older.

Why it is more than a spending account

Unlike a Flexible Spending Account, HSA money never expires — it rolls over year after year and is yours to keep even if you change jobs or plans. Many HSAs let you invest the balance once it passes a threshold, turning the account into a long-term, tax-free health fund you can even use in retirement.

A common strategy for those who can afford it: pay current medical bills out of pocket, let the HSA grow invested, and reimburse yourself years later using saved receipts. The money compounds tax-free in the meantime.

Frequently asked questions

What happens to my HSA if I do not use it?

It rolls over indefinitely and stays yours. There is no use-it-or-lose-it rule like an FSA, and the balance can be invested to grow.

Can I use an HSA with any plan?

No — you must be enrolled in an HSA-eligible HDHP to contribute. You can still spend an existing HSA balance on other plans, just not add to it.