How Health Savings Accounts (HSAs) Work
A health savings account lets you set aside money for medical costs with three tax breaks, and it can double as a retirement account. Here's who qualifies, the 2026 limits, what you can spend it on, and how to make the most of one during open enrollment.
By Pond.com editors Updated 3 min read
Quick answer
- An HSA is a savings account for medical costs that you can open only with an HSA-eligible high-deductible health plan.
- Contributions lower your taxable income, growth is tax-free, and withdrawals for qualified medical costs are tax-free.
- For 2026, you can contribute up to $4,400 with self-only coverage or $8,750 with family coverage, plus $1,000 if you're 55 or older.
- Unlike most FSAs, unused HSA money rolls over every year and stays yours if you change jobs.
- Many people invest their HSA for long-term growth and use it as an extra retirement account.
Open enrollment season is when many people choose their health plan for the coming year. If one of your options is a high-deductible plan, a health savings account (HSA) is worth understanding. It's one of the most tax-friendly accounts available, and it can help with retirement too.
This article is general information, not financial or tax advice. Check plan details with your employer or insurer.
What is an HSA?
An HSA is a savings account you use for medical expenses. To contribute, you must be covered by an HSA-eligible high-deductible health plan (HDHP), have no other disqualifying coverage and not be enrolled in Medicare. Starting in 2026, bronze and catastrophic plans bought through the Marketplace also count as HSA-eligible.
The triple tax break
- Contributions lower your taxable income (or go in pre-tax through payroll).
- Growth from interest or investments is tax-free.
- Withdrawals for qualified medical expenses are tax-free.
Payroll contributions can also avoid Social Security and Medicare taxes. Most states follow the federal rules, but a few tax HSAs.
2026 limits
| Coverage | Contribution limit |
|---|---|
| Self-only | $4,400 |
| Family | $8,750 |
| Catch-up, age 55 and over | +$1,000 |
Employer contributions count toward the limit. You have until the tax filing deadline, usually April 15, to make contributions for the year.
What you can spend it on
Qualified expenses include doctor visits, prescriptions, dental and vision care, many over-the-counter medicines, and more. Keep receipts. You can even pay yourself back years later for expenses you paid out of pocket, as long as the HSA was open when you had them.
HSA vs FSA
| HSA | FSA | |
|---|---|---|
| Needs a high-deductible plan | Yes | No |
| Unused money | Rolls over every year | Mostly lost at year-end, with limited carryover or grace periods |
| Stays with you if you change jobs | Yes | Usually no |
| Can be invested | Yes | No |
Using an HSA for retirement
Many people treat their HSA as an extra retirement account: they invest it in low-cost funds and pay current medical bills from regular savings if they can. After age 65, you can withdraw for any purpose and pay only income tax, like a traditional IRA. See index funds explained.
Is a high-deductible plan right for you?
An HDHP usually has lower premiums but higher out-of-pocket costs before coverage starts. It tends to suit people who are generally healthy and can afford the deductible. Compare total yearly costs, premiums plus expected care, for each plan.
Common questions
The account belongs to you, not your employer, so the money stays with you. You can keep it where it is or move it to another HSA provider. You can only keep contributing while you're covered by an HSA-eligible plan.
You can, but before age 65 you'll owe income tax plus a 20% penalty on non-medical withdrawals. After 65, the penalty goes away and non-medical withdrawals are taxed like income, similar to a traditional IRA.
An FSA is offered by employers, doesn't require a high-deductible plan and is mostly use-it-or-lose-it each year, with limited carryover or grace periods. An HSA requires an eligible plan but rolls over every year, can be invested and stays yours.