Health Savings Account: Definition
A Health Savings Account (HSA) is a tax‑advantaged savings account available to individuals enrolled in a qualifying high‑deductible health plan (HDHP). HSAs are designed to help account holders save for and pay qualified medical expenses.
Eligibility Requirements
To establish an HSA, the following conditions must be met:
- You can't be clamed as a dependent on another individuals tax return.
- You must be enrolled in an HSA-eligible plan, which might also be called a high-deductible health plan (HDHP).
- You can't be on Medicare.
- You can't have additional medical coverage that isn't an HDHP (dental, vision, disability, and long-term care insurance are permitted).
*According to the IRS, to qualify as a high-deductible health plan in 2025, a plan must have a deductible of at least $1,650 for self-only coverage and $3,300 for family coverage. It must also limit yearly out-of-pocket expenses to $8,300 for self-only coverage and $16,600 for family coverage.
Qualified Medical Expenses covered
Here’s a list of expenses that are typically considered “qualified medical expenses” that you can pay for using your HSA:
- Physician visits and medically necessary surgeries
- Prescription medications
- Ambulance services
- Mental health care
- Hearing aids
- Acupuncture
- Qualified long‑term care services
- Certain dental procedures
Note: Coverage may vary. Please consult your HSA provider for specific guidance.
HSA Contributions
- Contributions may be made pre‑tax through an employer or post‑tax with deductions claimed at filing.
- HSAs typically operate like standard bank accounts, with access via checks, debit cards, or electronic transfers.
- Documentation of qualified expenses should be retained for verification.
- Non‑qualified withdrawals are subject to income tax and penalties.
Here are the HSA contribution limits for the 2025 tax year:
- Self-only coverage: $4,300
- Family coverage: $8,550
- Additional catch-up contributions for 55 and older: $1,000
HSA Withdrawals
When it comes time to withdraw money from your HSA, here are the rules to keep in mind:
- HSA funds paid toward qualified medical expenses are tax- and penalty-free.
- If you’re age 65 or older, you can also use HSA funds for non-medical expenses without penalty, but you will owe income tax on the amount you withdraw.
- If you’re younger than 65, you can still use HSA funds for non-medical expenses, but you’ll owe income taxes and a 20% penalty.
How to open an HSA:
Opening an HSA, if you qualify for one, can be a straightforward process. Here are some steps to help guide you through the process.
- Confirm eligibility (HDHP enrollment, not a dependent, not enrolled in Medicare).
- Consult a financial advisor if guidance is needed.
- Review employer options (some employers offer HSAs with matching contributions).
- Select a provider (employer‑sponsored or independent financial institution).
- Apply (requires photo ID, Social Security number, and proof of HDHP enrollment).
- Begin contributions (via payroll deduction or scheduled transfers).