What Is an HSA, and How Does It Work?
A Health Savings Account, or HSA, is like a piggy bank for your health. You put money in, and you use it to pay for care. But this piggy bank comes with some of the best tax breaks around.
Who can have one?
You can add money to an HSA if you have an HSA-friendly high deductible health plan (HDHP). You also can't have other regular health coverage, be on Medicare, or be claimed as a dependent on someone's taxes.
How money goes in
From your paycheck. If you get your HSA through work, money can come out of each paycheck before taxes.
From your employer. Many employers add money too.
On your own. You can also add money yourself from your bank account.
There's a limit to how much can go in each year. For 2027, the limit is:
$4,500 if your plan covers just you
$9,000 if your plan covers your family
$1,000 more if you're 55 or older
The limit counts money from you and your employer together.
How money comes out
You can use your HSA to pay for qualified medical expenses. These include doctor visits, prescriptions, dental care, glasses and much more. Most HSAs give you a debit card to pay at the doctor's office or pharmacy. You can also pay with your own money and pay yourself back from the HSA later. Just save your receipts.
Why HSAs are special
Tax breaks. Money goes in, grows and comes out without taxes when you use it for medical costs.
It never expires. Unused money rolls over every year.
It's yours. If you change jobs or plans, you keep your HSA.
It can grow. Once you have enough saved, you can often invest it.
One rule to know
If you use HSA money for something that isn't a medical cost before age 65, you'll pay taxes on it plus a 20% penalty. After 65, there's no penalty. You'll just pay regular income tax, like a retirement account.
Meet Leo
Leo has an HDHP and puts $150 from each monthly paycheck into an HSA. Leo's employer adds $500 a year. That's $2,300 saved for the year, all before taxes. When Leo needed a $400 dental filling, the HSA card covered it. The rest stays in the account and rolls into next year.
Key takeaways
An HSA is a savings account for health costs that you can open with an HSA-friendly HDHP.
It has three tax breaks, and the money never expires.
You keep your HSA even if you change jobs.
