A Health Savings Account (HSA) is a tax-advantaged savings account designed for people with a high-deductible health plan (HDHP). You can use HSA funds to pay for qualified medical expenses now or save them for healthcare costs in retirement.
How an HSA Works
An HSA works like a personal savings account, but with three distinct tax advantages:
- Contributions are tax-deductible. Money you put in reduces your taxable income.
- Growth is tax-free. Interest and investment gains inside the HSA are never taxed.
- Withdrawals are tax-free when used for qualified medical expenses.
This triple tax benefit makes the HSA one of the most powerful savings tools available.
HSA Contribution Limits for 2026
The IRS sets annual contribution limits for HSAs. For 2026:
- Individual coverage: $4,300
- Family coverage: $8,550
- Catch-up contribution (age 55+): Additional $1,000
Contributions can come from you, your employer, or both — as long as the total does not exceed the annual limit.
Who Qualifies for an HSA?
To open and contribute to an HSA, you must meet all of these requirements:
- You are enrolled in an HSA-eligible high-deductible health plan (HDHP)
- You are not enrolled in Medicare
- You cannot be claimed as a dependent on someone else’s tax return
- You do not have other health coverage that disqualifies you (with some exceptions)
What Is an HDHP?
A high-deductible health plan is a health insurance plan with a higher annual deductible than a traditional plan. For 2026, the IRS defines an HDHP as a plan with:
- Minimum deductible of $1,650 (individual) or $3,300 (family)
- Maximum out-of-pocket of $8,300 (individual) or $16,600 (family)
Qualified Medical Expenses
You can withdraw HSA funds tax-free for a wide range of qualified expenses, including:
- Doctor visits and copays
- Prescription drugs
- Dental care and orthodontia
- Vision care and glasses
- Mental health services
- Medical equipment
- Lab tests and X-rays
You cannot use HSA funds for health insurance premiums (with a few exceptions, such as Medicare premiums after age 65).
HSA as a Retirement Account
One of the most powerful strategies is to use your HSA as a long-term retirement savings vehicle. After age 65, you can withdraw HSA funds for any reason without a penalty — you will just owe ordinary income tax on non-medical withdrawals, the same as a traditional IRA.
If you pay medical expenses out of pocket now and save your receipts, you can reimburse yourself from the HSA years later, tax-free. There is no time limit on reimbursement for past qualified expenses.
How to Open an HSA
You can open an HSA through your employer (if they offer one), or independently through a bank, credit union, or brokerage. Popular HSA providers include Fidelity, Lively, and HealthEquity.
Once open, you can invest HSA funds in mutual funds, ETFs, and other assets — just like an IRA.
HSA vs. FSA: What Is the Difference?
A Flexible Spending Account (FSA) is a similar account but has key differences:
- HSA funds roll over year to year; FSA funds typically expire at year-end.
- HSA requires an HDHP; FSA does not.
- HSA is owned by you and stays with you if you change jobs; FSA is employer-controlled.
- HSA can be invested; most FSAs cannot.
Bottom Line
An HSA is one of the few accounts that offers a triple tax benefit. If you have an HDHP, maxing out your HSA each year — and investing the balance rather than spending it — is one of the smartest moves you can make for both current and future healthcare costs.