Why a Health Savings Account (HSA) Is a Good Deal
If you're single, you can set aside up to $4,400 per year in pre-tax money (up to $8,750 per year for families) for medical costs in an HSA.
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The downside is that you need a high-deductible health plan (HDHP) to contribute to an HSA. That means you'll have to pay thousands of dollars before most coverage starts.
How does an HSA work?
Health savings accounts (HSAs) allow you to put pretax money into a savings account and use that money for medical costs, without ever paying income taxes on it.
An HSA will usually give you a debit card to use for certain costs you have to pay at the hospital or pharmacy, such as prescription drugs and some medical tests.
You can only contribute to an HSA if you have a high-deductible health plan (HDHP). Funds in an HSA can earn interest and be invested, so your HSA can grow if you don't spend the money. Your employer can also contribute to your HSA.
For example, let's say you're expecting medical bills totaling $3,000 in the coming year for prescriptions, medical tests or healthcare you expect you'll need, such as eye surgery or childbirth. You can use the money you have in an HSA, which you don't have to pay taxes on, as long as you had the account before you had to pay the bill.
Money in an HSA is yours forever and can be used at any time. That means you can use it as a rainy day fund for medical costs, or you can use it as a retirement savings tool to cover costs you're responsible for paying in the future.
Health savings account limits 2026
The 2026 HSA contribution limit is $4,400 for single people and $8,750 for families.
This limit is the most you or your employer can put in the HSA account each year. If you are age 55 or older, you can make an extra $1,000 annual contribution.
Is an HSA worth it?
An HSA is worth it if you can set aside the money and don't mind having less coverage.
That's because an HSA lets you save a lot of money upfront on your taxes, and you control the money until you choose to spend it. Plus, your HSA investments can grow tax-free and, if you use your funds to pay for eligible costs, you can withdraw your contributions without paying taxes. That triple tax advantage could easily save you tens of thousands of dollars or more over the course of your life.
The downside is that you are making some trade-offs. For example, you'll often get worse medical coverage when you get a high-deductible health insurance plan that's eligible for an HSA.
When a plan has a high deductible, you have to pay more up front if you need medical treatment other than preventive care. For example, you may need to pay the first $1,700 in health care bills before the plan's cost-sharing benefits begin. However, you can use your HSA funds to pay for this, which can make an HDHP a good financial choice.
HSAs offer several tax benefits:
- You can deduct your HSA contributions from your taxes.
- If your employer contributes money to your HSA, the contribution is not included in your total taxable income.
- The interest and/or capital gains you earn from an HSA are tax-free.
- When you use your money for eligible costs, the distributions are tax-free.
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HSA pros and cons
Benefits of having an HSA
- The money rolls over each year
- Your employer might contribute money
- You keep the money even if you change plans
- Can build long-term savings for health care
- Contributions are pre-tax
Drawbacks of having an HSA
- You have to get a high-deductible plan
- Annual caps on how much you can contribute
- Penalties if you use the money on non-medical things
- Your account might have monthly or annual fees
What can you spend HSA funds on?
You can use money in an HSA to pay for doctor visits and dentist bills, prescription copays , eye exams, contacts, prescription glasses and medical supplies from bandages to hearing aids.
The list of things you can pay for with your HSA is long. It even includes things your health insurance might not cover, such aslaser eye surgery, guide dogs or fertility treatments.
While you usually can't use HSA funds to pay monthly bills for health insurance, there are important exceptions. You can use HSA money to pay your plan's monthly rate for:
- COBRA insurance if you lose your job
- Long-term care insurance
- Medicare costs for Parts B, C and D
How much can you save with an HSA?
The amount of money you could save on taxes depends on your income tax rate.
For a single person who puts the annual maximum of $4,400 into their HSA, the tax savings would typically be between $880 and $1,540 annually. A family could save more than $3,000 per year on income taxes if they contribute the maximum amount of $8,750 and have a top tax rate of 35%. Those living in states with local income taxes could save even more.
Single person
Family
Tax rate | Maximum tax savings |
|---|---|
| 20% | $880 |
| 25% | $1,100 |
| 30% | $1,320 |
| 35% | $1,540 |
Single person
Tax rate | Maximum tax savings |
|---|---|
| 20% | $880 |
| 25% | $1,100 |
| 30% | $1,320 |
| 35% | $1,540 |
Family
Tax rate | Maximum tax savings |
|---|---|
| 20% | $1,750 |
| 25% | $2,188 |
| 30% | $2,625 |
| 35% | $3,063 |
HSA funds can roll over or be used as retirement savings
The money in an HSA is yours. You take your HSA money with you if you leave a job, and unused HSA money rolls over from year to year. That means if you have $500 in your HSA in December, you do not have to use it or lose it. Any unused funds do not count toward the maximum contribution in the new year, so you can build a nest egg to help pay for health care needs.
Because HSA funds stay in your account from year to year, you won't risk losing your money.
This gives you more freedom with an HSA than you'd have with an FSA(flexible spending accounts) which are also used to pay for medical costs but have more restrictions.
Once you enroll in Medicare, you can no longer contribute to an HSA, but you can keep any leftover money. You can use your HSA funds to pay for many of the costs you're responsible for with Medicare. That includes your monthly rate, deductibles, copays and coinsurance for Original Medicare (Part B), Medicare Advantage (Part C) or a Medicare prescription plan (Part D). Your spouse inherits your HSA if you choose them as your "beneficiary".
Which health insurance plans are HSA-eligible?
You can only make contributions to an HSA if you are enrolled in a high-deductible health plan (HDHP). For example, a high-deductible health plan for a single person needs to have a deductible of $1,700 or higher and an out-of-pocket maximum that's less than $8,500.
An HSA-eligible health insurance plan needs to:
- Have a plan deductible that's higher than the IRS requirement.
- Have an out-of-pocket maximum that's lower than $8,500.
- Not offer insurance coverage until the plan's deductible has been met, except for preventive care services like check-ups and screenings.
Based on current IRS rules, an HSA-eligible insurance plan for a single person must have a deductible that's $1,700 or higher. Also, the plan's out-of-pocket maximum must be $8,500 or less for a single person. Plans you can buy on HealthCare.gov can have out-of-pocket maximums up to $10,600, so it's important to check that before you buy if you want an HSA
High-deductible health plan (HDHP) limits
Self only | Family | |
|---|---|---|
| Minimum deductible | $1,700 | $3,400 |
| Maximum out-of-pocket | $8,500 | $17,000 |
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In the HealthCare.gov Plan Finder, HSA-eligible plans are shown in the upper left corner of the plan description. Or you can filter your local options to only see HSA-eligible plans.
Find out if your plan is HSA-eligible
You can find out if your health plan lets you get an HSA by calling your insurance company and asking.
If you get a plan through a federal or state health exchange, the plan details should tell you if you can get an HSA as part of it.
When choosing an HSA, don't forget to check:
- Interest rates
- Investment options
- Account fees you're responsible for paying
You can open an HSA account through most banks.
If you want to use an HSA to pay for healthcare costs in the near future, it’s important to open your account as soon as possible. That holds true even if you don’t have the money to fund it right away. That’s because you can only use money in your HSA to pay for costs that happen after you open the account.
If you later switch to a plan that can't have an HSA, you can't add contributions for that year. So, it's a good idea to fund your HSA account while you still have an eligible plan. However, you can use the funds that are already in the account for eligible costs.
If you can't open an HSA because you don't have an HDHP, you'll have to wait until your next enrollment period to change your coverage. This is usually each fall during open enrollment but you may be able to change your plan mid-year if you have a special circumstance like moving or a change in your family size.
Methodology and sources
Estimated annual tax savings are based on contributions up to the 2026 health savings account limits and the tax rates listed.
- IRS Publication 969 on health savings accounts
- Health Insurance Exchange Public Use Files (PUFs) from the Centers for Medicare & Medicaid Services (CMS)
- HealthCare.gov resources on high-deductible health plans (HDHPs)
Analyst
Stephanie Guinan is an Analyst for ValuePenguin/LendingTree. She specializes in simplifying complex insurance topics for consumers.
She’s also worked as an award-winning data journalist and content marketing writer. Stephanie’s work has been cited by Wall Street Journal, New York Times, Rolling Stone and more.
Expertise
- Health insurance and Medicare
- Home and auto insurance
- Crunching numbers
Referenced by
- Wall Street Journal
- New York Times
- Rolling Stone
Editorial note: The content of this article is based on the author's opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.
