Health savings account

What It Means

A health savings accountSavings accountA bank or credit union account for money you're setting aside for later, which earns interest and is insured up to federal limits at insured institutions. See more (HSA) is a tax-advantaged accountTax-advantaged accountAn account the tax code rewards, such as a 401(k), IRA, HSA or 529 plan, where taxes are cut, delayed or skipped if you follow its rules. See more for medical costs, available to people covered by a health planHealth insuranceA plan you pay a premium for that covers part of your medical costs, while you pay your own share through a deductible, copays and coinsurance. See more that qualifies, traditionally a high-deductibleInsurance deductibleThe part of a covered loss you pay yourself before your home, renters or auto insurance pays the rest, set as a dollar amount or a percentage. See more health plan (HDHP). Contributions are deductible or come out of pay before tax, earnings aren't taxed, and withdrawals for qualified medical expenses are tax-free. Money left over stays in the account from year to year and belongs to you, not your employer.

How People Say It

• "I pay the dentist out of my HSA."
• "My HSA money rolls over, so I don't rush to spend it."
• "We picked the high-deductible plan to get the HSA."

The Breakdown

Worked example. Lena, 38, has self-only HDHP coverage and a 22% federal tax rate. She plans to put $3,000 into her HSA in 2026.

What the result means. Lena's $3,000 lowers her taxable income, and when she spends it on qualified medical costs later it comes out tax-free. Anything she doesn't spend this year stays in the account for next year and beyond.

Who can open one in 2026. You need HSA-eligible coverage. For 2026 the IRS defines an HDHP as one with a deductible of at least $1,700 for self-only or $3,400 for family coverage. From January 1, 2026, under the law signed in July 2025, bronze and catastrophic plans count as HSA-compatible, and IRS Notice 2026-05 says they don't need to be bought through an Exchange. Certain direct primary care arrangements no longer block contributions either, and HSA money can pay those periodic fees. You can't contribute once you're enrolled in Medicare.

Good to Know

Money taken out for anything other than qualified medical costs is taxed as income and, before age 65, owes a 20% additional tax, according to IRS Publication 969; after 65, disability or death the 20% no longer applies. The HSA catch-up is $1,000 a year from age 55. Keep receipts for what the account pays for, since you may need to show a withdrawal was for medical care. Check with your insurer or employer that your plan is HSA-eligible before contributing.

Related Terms and Categories

• Flexible spending account

  An account through your employer that lets you set aside pretax pay for eligible medical costs; for 2026 you can put in up to $3,400, mostly spent within the plan year.

• Health insurance deductible

  What you pay on your own for covered health care before your health insurance plan begins sharing the cost.

• Out-of-pocket maximum

  The most you pay in a plan year for covered in-network care through deductibles, copays and coinsurance, after which the plan pays covered benefits in full.

• Tax-advantaged account

  An account the tax code rewards, such as a 401(k), IRA, HSA or 529 plan, where taxes are cut, delayed or skipped if you follow its rules.

• Contribution limit

  The most the IRS lets you put into a tax-advantaged account in a year, such as a 401(k), IRA or HSA, often with a higher catch-up amount at older ages.

• Open enrollment

  The yearly window when you can sign up for, change or drop health insurance and other benefits, set by your employer for job-based plans.

Saving and investing basics