What is a HSA?

A Health Savings Account functions as a dedicated medical savings vehicle tied to high-deductible health insurance. You deposit money before taxes are taken out (or deduct contributions if you deposit after-tax dollars), invest those funds if you choose, and withdraw tax-free for qualified medical expenses like doctor visits, prescriptions, dental care, and vision services.

For 2024, you can contribute up to $4,150 if you have self-only HDHP coverage or $8,300 for family coverage. If you're 55 or older, you can add a $1,000 catch-up contribution.

A Flexible Spending Account (FSA) is use-it-or-lose-it: most plans require you to spend funds by year-end or forfeit them, though some employers offer a $640 carryover or a 2.5-month grace period. An HSA has no expiration—your balance rolls over indefinitely and remains yours even if you leave your employer.

HSAs benefit individuals who can afford higher out-of-pocket costs in exchange for lower monthly premiums and want tax-advantaged medical savings. They're particularly valuable if you're relatively healthy and don't anticipate frequent medical expenses, allowing you to invest contributions and build a healthcare nest egg for future years or retirement.

Can I use my HSA to pay health insurance premiums?

Generally no—health insurance premiums are not qualified HSA expenses, with specific exceptions: COBRA continuation coverage, premiums while receiving unemployment benefits, Medicare premiums (excluding Medigap), and qualified long-term care insurance premiums within IRS age-based limits.

What happens if I withdraw HSA money for non-medical expenses?

If you're under 65, non-qualified withdrawals are subject to ordinary income tax plus a 20% penalty. After age 65, you pay only ordinary income tax with no penalty, similar to a traditional IRA distribution.

Do I need to report HSA contributions on my tax return?

Can I invest my HSA funds like a retirement account?

Most HSA providers allow investment in mutual funds, stocks, or ETFs once your cash balance exceeds a minimum threshold (commonly $1,000-$2,000). Investment options and fees vary by provider, so compare carefully before choosing an HSA custodian.