Health Savings Accounts 101
February 17, 2026
It’s benefits enrollment time, and this year your employer is offering a new option for health insurance—a high deductible health plan (HDHP) paired with a health savings account (HSA). What is an HSA, how does it work, and is it right for you?
An HSA is just what it sounds like: an account where you save money specifically for healthcare expenses. To be eligible to use an HSA, you must also have a high deductible health insurance plan, with a deductible of at least $1,650 for an individual or $3,300 for a family in 2025. HDHPs typically have lower monthly premiums, and the idea is that the money you save through having the lower premium can be contributed to the HSA. The money in the HSA can be used to meet the deductible and pay for other medical or healthcare expenses not covered under your insurance.
How Does It Work?
The money you contribute to an HSA comes out of your paycheck before taxes are calculated, so these contributions reduce your taxable income and lower your tax bill. The maximum contribution limit is set annually by the IRS and typically increases each year. For 2025, the contribution limits are $4,300 for individual coverage and $8,550 for family coverage. Those aged 55 or older may contribute an additional $1,000 as a catch-up contribution.
Eligible expenses under an HSA include many not typically covered by insurance, including deductibles, co-insurance, prescriptions, dental and vision care, and even complementary therapies such as acupuncture and chiropractic care for specific conditions. If you withdraw money for non-eligible medical expenses, you’ll have to pay ordinary income taxes on the amount withdrawn, plus a 20% penalty if you are under age 65.
HSAs offer additional financial benefits. The money you contribute rolls over from year to year and is not tied to your employer. It belongs to you, so if you leave your job, the money stays with you. Not only is the money you contribute tax-free, but you can invest it through the HSA and your contributions can grow tax-free as well. Withdrawals for qualified expenses are also tax-free, giving HSAs a triple tax advantage.
Is an HSA Right for Me?
It depends. For younger employees who have fewer health risks, a HDHP with an HSA can make a lot of financial sense. It can even be part of your overall retirement strategy. These employees have a longer time horizon for their HSA contributions to compound and grow through being invested in mutual funds, stocks, and other assets. After age 65, withdrawals for non-medical expenses are only taxed as income—they are no longer subject to penalties.
For high-income earners, an HSA can be an additional tax-saving strategy. If an employer doesn’t offer a matching contribution for your 401(k), you might contribute to an HSA first to reduce more of your taxable income, then max out your 401(k) and IRA.
If you don’t fall into one of those categories, you may still benefit but need to consider your individual circumstances more carefully. For those over 55, health risks can be higher, so a traditional health insurance plan with a lower deductible may be better, especially if you have an existing chronic health condition. If your healthcare costs usually meet or exceed your deductible, cannot cover a substantial expense of $5,000 or more without difficulty, or if you’re planning surgery or pregnancy soon, a traditional plan might save you money overall.
If you are in good health and continue to work past 65, you can delay enrolling in Medicare as long as you have employer coverage. This means you can continue to contribute to an HSA if you maintain HDHP coverage through your employer. Once you enroll in Medicare, however, you can no longer make contributions. Additionally, if you started receiving Social Security benefits before age 65, you’re automatically enrolled in Medicare Part A when you turn 65 and cannot opt out.
With healthcare costs in retirement continuing to rise, HSAs can help cover the estimated $300,000 that many experts believe a couple will need during a potential 30 years of retirement. The key is to find an HSA that offers low-cost, high-performing, reputable funds and doesn’t charge hefty fees or require a minimum balance for investing. Talk to your advisor to run the numbers and see what works best for your situation.
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