A Health Savings Account (HSA) is a tax-advantaged account paired with a qualifying high-deductible health plan (HDHP). It has three separate tax benefits per IRS Publication 969: contributions are pre-tax, earnings grow tax-free, and withdrawals for qualified medical expenses are completely tax-free. No other savings vehicle offers all three, which is why financial planners often call it the “triple tax advantage.”
Unlike a Flexible Spending Account (FSA), the money in an HSA rolls over indefinitely. There’s no use-it-or-lose-it rule — the balance stays in the account until you spend it, including in retirement.
Who can contribute to an HSA
To open and contribute to an HSA, you must be enrolled in a qualifying HDHP. For 2025 and 2026, the IRS defines a qualifying HDHP as a plan with at least the following deductibles and no more than the following out-of-pocket maximums (IRS Publication 969, Rev. Proc. 2025-19):
| Self-only coverage | Family coverage | |
|---|---|---|
| Minimum deductible — 2025 | $1,650 | $3,300 |
| Minimum deductible — 2026 | $1,700 | $3,400 |
| Maximum out-of-pocket — 2025 | $8,300 | $16,600 |
| Maximum out-of-pocket — 2026 | $8,500 | $17,000 |
You cannot contribute to an HSA if you are enrolled in Medicare (Part A or Part B), can be claimed as someone else’s dependent, or have non-HDHP health coverage (IRS Publication 969). Once enrolled in Medicare, per IRS Pub 969, “beginning with the first month you are enrolled in Medicare, your contribution limit is zero” — existing HSA funds remain yours to spend indefinitely.
Contribution limits
| Self-only | Family | |
|---|---|---|
| 2025 | $4,300 | $8,550 |
| 2026 | $4,400 | $8,750 |
| Catch-up (age 55+) | +$1,000 | +$1,000 per eligible spouse |
The $1,000 catch-up contribution is set by statute (IRC Section 223(b)(3)) and is not indexed for inflation — it has been $1,000 since 2009. If both spouses are 55 or older, each must have their own HSA to claim a separate $1,000 catch-up.
Contributions made through payroll deduction avoid both federal income tax and FICA taxes (Social Security and Medicare). Direct contributions made outside of payroll are deductible above-the-line on Form 1040 — no need to itemize (IRS Publication 969).
What qualifies as a medical expense
The IRS list of qualified medical expenses is broad. A few examples covered tax-free:
- Doctor visits, surgery, hospital costs
- Prescription drugs
- Dental and vision care
- Mental health services
- Hearing aids and eyeglasses
- Long-term care insurance premiums (up to IRS age-based limits per Publication 969)
- Medicare premiums (Parts B, C, D) after age 65 (IRS Publication 969)
Non-qualified withdrawals before age 65 are subject to ordinary income tax plus a 20% additional tax. After age 65, the 20% additional tax disappears — non-medical withdrawals are taxed as ordinary income only (IRS Publication 969), making the HSA function like a traditional IRA for non-medical spending.
Investing your HSA
HSA funds can be invested in stocks, mutual funds, and ETFs — earnings grow tax-free. The IRS does not impose a minimum balance before investing; that’s a custodian business decision. Investment minimums vary by custodian. Many traditional bank-based HSA providers require a $1,000–$2,000 cash floor before allowing investments. Some newer platforms have eliminated the minimum — Fidelity’s HSA, for example, allows investing from $0.
Choosing an HSA custodian with low-cost investment options is worth attention. The account is portable — you can keep it and invest it regardless of job changes or insurance plan switches.
The HSA as a retirement account
Because HSA balances roll over without limit and can be invested, many financial planners treat HSA contributions as a secondary retirement savings vehicle. The approach: contribute the maximum each year, pay current medical expenses out of pocket when you can afford to (and save the receipts), then let the HSA balance compound for decades. IRS Publication 969 does not impose a time limit on expense reimbursements — as long as the expense was incurred after the HSA was opened, you can reimburse yourself years or decades later, completely tax-free.
Over a 20–30 year career, this creates a large pool of tax-free money accessible for any medical cost — past or future. After 65, the non-medical withdrawal rules match a traditional IRA.
HSA vs FSA
| Feature | HSA | FSA |
|---|---|---|
| Requires HDHP | Yes | No |
| Annual rollover | Yes — unlimited | No (use-it-or-lose-it, with limited grace period or carryover) |
| Portable | Yes | No — typically forfeited if you leave employer |
| Investment options | Yes | Rarely |
| Contribution limit (2025, self) | $4,300 (IRS Rev. Proc. 2024-25) | $3,300 (IRS Rev. Proc. 2024-40) |
| Employer can contribute | Yes | Yes |
Where to open an HSA
If your employer offers a payroll-deducted HSA, check whether the associated custodian has good investment options. If not, you can still contribute directly to an independent HSA (Fidelity, Lively, HealthEquity) and take the above-the-line deduction — though you won’t avoid FICA on those contributions the way payroll deduction allows.
The difference in custodians matters over time: low-cost index fund options inside the HSA compound tax-free over decades. Investment fees in an HSA are just as erosive as in any other investment account.