What is an HSA?
A Health Savings Account (HSA) is a tax-advantaged account for people with High Deductible Health Plans (HDHPs). It offers the only "triple tax advantage" in the tax code: tax-free contributions, growth, AND withdrawals.
Many financial experts consider the HSA the single best tax-advantaged account available — even better than a 401(k) or IRA when used strategically.
2026 HSA Contribution Limits
| Coverage Type | 2026 Limit | Catch-Up (55+) |
|---|---|---|
| Self-Only | $4,400 | +$1,000 = $5,400 |
| Family | $8,750 | +$1,000 = $9,750 |
HDHP Requirements (2026)
• Minimum deductible: $1,700 (self) / $3,400 (family)
• Maximum out-of-pocket: $8,500 (self) / $17,000 (family)
The Triple Tax Advantage
HSAs are the only account with ALL THREE tax benefits:
| Advantage | What It Means | Savings |
|---|---|---|
| 1. Tax-Free Going In | Contributions reduce taxable income + avoid FICA (7.65%) | ~30% of contributions |
| 2. Tax-Free Growth | Investments grow without any tax | Significant over decades |
| 3. Tax-Free Coming Out | Withdrawals for medical expenses are never taxed | Potentially 100% tax-free |
Compare this to a 401(k) (taxed on withdrawal) or Roth IRA (taxed on contribution). The HSA beats both when used for medical expenses.
HSA as a Retirement Account
The real power of an HSA comes from treating it as a "stealth IRA":
- Contribute the maximum each year
- Pay medical expenses out-of-pocket (save receipts!)
- Let the HSA grow tax-free for decades
- In retirement, reimburse yourself for all past medical expenses
- Or after 65, withdraw for any purpose (taxed like IRA)
Save Those Receipts
HSA vs FSA
| Feature | HSA | FSA |
|---|---|---|
| Ownership | You own it (portable) | Employer owns it |
| Rollover | 100% rolls over forever | Limited carryover ($610) |
| Investment | Can invest for growth | No investment option |
| Eligibility | Only with HDHP | Any health plan |
| 2026 Limit | $4,400/$8,750 | $3,400 |
FSA Use-It-or-Lose-It
Eligible HSA Expenses
100% Eligible (Tax-Free)
- Doctor visits and copays
- Prescription medications
- Dental work and braces
- Vision — glasses, contacts, LASIK
- Mental health and therapy
- Medical equipment
- First-aid supplies and bandages
- Sunscreen (SPF 15+)
- Period products (since 2020)
Not Eligible
- Health insurance premiums (with exceptions)
- Cosmetic procedures
- Gym memberships
- Vitamins (unless prescribed)
- Teeth whitening
Investing Your HSA
Most HSA providers let you invest once you reach a threshold (often $1,000-2,000 in cash). Investment options typically include:
- Index funds (low-cost, recommended)
- Target date funds
- Individual stocks (some providers)
- Bond funds for conservative growth
Best HSA Providers
HSA After 65
After age 65, HSA rules become more flexible:
- Still tax-free for medical expenses (including Medicare premiums!)
- Non-medical withdrawals taxed as income (like Traditional IRA)
- No 20% penalty for non-medical use
- Effectively becomes a secondary IRA
By age 65+, the average retiree has significant medical expenses anyway, so most HSA funds will likely be used tax-free.
Frequently Asked Questions
Q: Can I contribute if I have Medicare?
A: No. Once you enroll in Medicare, you can no longer contribute to an HSA. You can still use existing funds tax-free for medical.
Q: What happens to my HSA if I change jobs?
A: It's yours! You keep it forever, even if you switch to a non-HDHP. You just can't make new contributions without an HDHP.
Q: Should I pay medical bills from HSA or out-of-pocket?
A: If you can afford to pay out-of-pocket, let your HSA grow. Save receipts and reimburse yourself years or decades later, tax-free.
Q: Can I use HSA for my spouse/kids?
A: Yes! You can use your HSA for qualified expenses for anyone in your tax family, even if they're not on your health plan.
Q: Is there a deadline to use HSA funds?
A: No! Unlike FSAs, HSA funds never expire. They roll over year after year indefinitely. That's what makes them so powerful.
Q: What's the penalty for non-medical withdrawals?
A: Before age 65: income tax + 20% penalty. After 65: income tax only (like Traditional IRA). For medical: always tax-free.
HSA Optimization Strategy
- Max out your HSA every year ($4,400/$8,750 in 2026)
- Choose a low-cost HSA provider with good investment options
- Keep only a small cash buffer; invest the rest
- Pay medical expenses out-of-pocket if possible
- Save all medical receipts indefinitely
- Let the HSA grow untouched for decades
- In retirement, reimburse past expenses or use for Medicare
This calculator provides projections based on assumed constant returns. Actual results will vary. Tax rules are complex and subject to change. Consult a tax professional for personalized advice.