What is HSA?
Health Savings Account (HSA) is a tax advantaged account used to save for and pay for qualified medical expenses such as medical copays, prescriptions, medical tests (such as X-rays), vision and dental expenses. And remaining contributions can be invested and used in the future for qualified medical expenses. After age 65, these can be used for other expenses after paying income tax.
Key HSA deadlines
- Deadline for making contributions for the 2025 tax year: April 15, 2026.
- Deadline for making contributions for the 2026 Tax year: April 15, 2027.
Make sure you designate the year when you make contributions. For example, if you are making 2025 contributions in Feb 2026, designate the tax year as 2025. Employer contributions are typically completed by the end of the calendar year itself.
HSA Contribution limits
HSA Contribution limits for 2025
- $4,300 for self-only coverage and $8,550 for family coverage, with an additional $1,000 catch-up contribution allowed for those age 55 and over by year-end
HSA Contribution limits for 2026
- $4,400 for self-only coverage and $8,750 for family coverage, with an additional $1,000 catch-up contribution allowed for those 55 and older
HSA Is triple-tax advantaged
- Tax advantaged at contributions
- HSA is paid from pre-tax contributions, similar to a 401K. These contributions are taken out by your employer even before taxes are paid. Similar to 401K, your taxable income will be reduced by the amount of the HSA contribution.
- Moreover, if you self-fund your HSA using post-tax contributions, these are tax deductible when you file your returns.
- Growth in HSA contributions grow tax free.
HSAs can be invested in stocks, ETFs, bonds. The growth in these investments will be tax free. You will not need to pay taxes on the returns on the HSA while the money remains in HSA.
- Withdrawals for qualified medical expenses are tax free
HSA withdrawals for qualified medical expenses are tax-free. So these funds can be used to pay medical bills in retirement years. They can also be used penalty free for generic expenses after age 65 but will be taxed at ordinary income tax for generic expenses..
How it works
- HSAs are paired with a high deductible health plan (HDHP). These are higher deductible plans with lower premiums. Typically these plans are great for people who are younger and healthy.
- Preventive Care: The high deductible health plans typically pay for 100% preventive care.
- Out of pocket max: The out-of-pocket max provides a ceiling and protects you against any catastrophic medical costs.
Considerations for an HSA
Minimum balance requirement
- You may have to maintain a minimum balance requirement such as $1000 per account.
Before you figure out how to invest your HSA, first determine your goals.
- If you have planned expenses such as an upcoming surgery, you may want to set aside cash in your HSA to pay for it.
- Save for retirement: Use the remaining amount after accounting for more immediate medical expenses – for longer term medical expenses in retirement. You can also use it for general retirement expenses but you will need to
FAQs
- What is the difference between HSA and Healthcare FSA?
An HSA is an employee owned triple tax advantaged account that is paired with a High deductible healthcare plan and rolls over contributions indefinitely.
A healthcare FSA is owned by employers and is a’ use-it-or-lose-it’ account type. It is good for paying for predictable medical expenses with pre-tax dollars.
- Do HSAs have penalties?
Before age 65, if you withdraw HSA or non-qualified medical expense, you will pay a 20% penalty as well as ordinary income taxes.
