Health savings accounts (HSAs): the basics

A health savings account, or HSA, is a personal account for paying medical costs that comes with unusually favorable tax treatment. This article covers eligibility, the contribution limits, how the money can be used and what happens at Medicare age. The governing reference is IRS Publication 969.

Who can contribute

Having an HSA and being allowed to contribute to one are different things. To contribute for a given month, Publication 969 says a person generally must:

• be covered by a high deductible health plan (HDHP) on the first day of the month,
• have no other health coverage, apart from certain permitted types such as dental, vision and some telehealth coverage,
• not be enrolled in Medicare, and
• not be claimable as a dependent on someone else's tax return.

Once money is in the account, it belongs to the account holder. It can be spent on qualified expenses later, even without an HDHP.

What counts as a high deductible health plan

The IRS sets a minimum deductible and a maximum out-of-pocket limit each year. A plan generally has to meet both to qualify.

The 2026 figures are from Revenue Procedure 2025-19 and the 2027 figures from Revenue Procedure 2026-24. The same two revenue procedures set the contribution limits shown below.

A plan with a high deductible is not automatically HSA-eligible. The plan documents or the insurer can confirm whether it qualifies.

The 2025 law commonly called the One Big Beautiful Bill Act widened eligibility in a few ways, described in IRS Notice 2026-5. For months beginning after December 31, 2025, bronze and catastrophic plans available as individual coverage through a health insurance Exchange are treated as HDHPs even if they do not meet the usual deductible and out-of-pocket tests.

Contribution limits

People who are 55 or older by the end of the tax year can contribute an additional $1,000. That catch-up amount is listed in Publication 969 for 2025 returns and is set by statute, not adjusted annually.

Points that are often overlooked:

• Employer money counts. The limit covers contributions from all sources. Amounts an employer puts in, including payroll contributions through a cafeteria plan, reduce what the individual can add.
• Partial-year eligibility. A person who is eligible for only part of the year generally has a prorated limit.
• Deadline. Contributions for a tax year can generally be made until the tax filing deadline the following April.
• Excess contributions. Putting in more than the limit generally triggers a 6% excise tax for each year the excess stays in the account.

The tax treatment

HSAs have three tax advantages:

1. Going in. Contributions a person makes are deductible whether or not they itemize, and employer contributions are not included in income.
2. While invested. Interest and other earnings are not taxed while they remain in the account.
3. Coming out. Withdrawals used for qualified medical expenses are tax-free.

Unlike a flexible spending arrangement, which is generally "use it or lose it," an HSA balance carries over indefinitely. The account is also portable. It stays with the person through job changes and into retirement. Where the account provider offers it, HSA money can be invested, which carries the usual investment risks.

Using the money

Qualified medical expenses generally include deductibles, copayments, prescriptions, and dental and vision care for the account holder, a spouse and dependents. The expense must be incurred after the HSA was established.

Insurance premiums are generally not a qualified expense, with exceptions listed in Publication 969:

• long-term care insurance, subject to limits,
• health care continuation coverage such as COBRA,
• health coverage while receiving unemployment compensation, and
• Medicare and other health coverage for an account holder who is 65 or older, but not premiums for a Medicare supplement (Medigap) policy.

Money withdrawn for anything else is included in taxable income and is generally subject to an additional 20% tax. The additional 20% tax does not apply after the account holder reaches 65, becomes disabled or dies. After 65, then, a non-medical withdrawal is taxed as ordinary income, similar to a withdrawal from a pre-tax retirement account.

HSAs and Medicare

Enrollment in any part of Medicare ends eligibility to contribute. Publication 969 states that the contribution limit is zero beginning with the first month a person is enrolled.

There is a trap for people who work past 65. Premium-free Part A can be made effective up to six months before the date a person signs up. Contributions made during that retroactive period count as excess. For that reason, Medicare.gov advises stopping HSA contributions six months before retiring or applying for Social Security benefits. The enrollment rules are explained in Medicare enrollment periods and late-enrollment penalties.

The existing balance is unaffected. It can keep paying for qualified expenses, including Medicare Part B and Part D premiums once the account holder is 65 or older.

What happens to an HSA at death

If a spouse is the designated beneficiary, the account becomes the spouse's own HSA. For any other beneficiary, the account stops being an HSA and its value is generally taxable to that beneficiary in the year of death. That makes the beneficiary designation on an HSA worth reviewing.

Questions worth asking

• Is the current health plan confirmed as HSA-eligible?
• How much is the employer contributing, and how much room is left under the limit?
• When is Medicare enrollment expected, and when should contributions stop?

For people leaving a job before 65, HSA money can help with COBRA premiums and out-of-pocket costs. See health coverage if you retire before 65. Tax rules for HSAs depend on individual circumstances and state law varies, so a tax professional can advise on specifics.