Got an HSA? Here’s What You Need to Know

January 19, 2024

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An HSA or Health Savings Account is where you could put away money to help pay for qualified medical expenses, such as prescriptions and doctor visits.

Generally speaking, you need to meet these requirements to be able to fund an HSA:

Your health insurance plan has to be considered a High Deductible Healthcare Plan (HDHP). Your employer or insurance company will be able to tell you if you’ve got an HDHP. For more information on what qualifies as HDHP, visit Healthcare.gov.
You have no other health coverage except what is permitted under IRS rules (see "Other health coverage").
You’re not covered by Medicare.
You’re not listed as a dependent on someone else’s tax return.

In this article, we'll go over the basics of an HSA, so that you can decide if it's right for you. Keep in mind: We're talking only about HSAs here, not HRAs (Health Reimbursement Arrangements) or FSAs (Flexible Spending Accounts) which work a little differently.

The basics of HSAs

While money in an HSA earns interest, it’s different from your typical savings account and it’s also different from a catch-all emergency fund. Here are some key highlights:

Contributions to your HSA may be tax-deductible.
Distributions from your HSA are tax-free if you use them to pay for qualified medical expenses.
There are limits to how much you can put into your HSA each year.
Money in your HSA doesn't expire and there are no required minimum distributions.

Isn’t an HSA just an emergency fund with a different name?

We get it, health expenses can sometimes be emergency expenses. But there are a few differences between having money in an account “for emergencies” and having an HSA that’s meant only for medical expenses and that has its own IRS category.

The HSA includes tax benefits other savings accounts may not

If you’re contributing money to your HSA, you won’t pay federal taxes on the interest, unlike the interest you earn with a traditional savings account or a certificate of deposit.

Depending on how it’s funded, there could be an additional benefit: If the money you contribute to an HSA is taken out of your paycheck before taxes, this could lower your taxable income. If you fund an HSA using after-tax dollars, you may be able to deduct these contributions on your tax returns, but it’s a good idea to double-check with a tax professional to see if this applies to you.

HSAs could help you bolster your savings for when you’re older

Having different buckets for different expenses is a tenet of budgeting and long-term financial planning.

Because you can only use the money tax-free for qualified medical expenses, when you contribute money to an HSA, you’re creating a pool of funds for this specific type of expense.

What can you spend your HSA money on?

The IRS outlines what is considered a qualified medical expense in IRS Publication 969: Health Savings Accounts. Your insurer will also be able to provide guidance on what types of expenses are covered. For example, qualified expenses can include things like co-pays, prescriptions and certain medical supplies.

Good to know: Under the 2020 CARES Act, in response to COVID-19, some rules about how you can use HSA funds have changed. Contact your HSA servicer, health insurer and/or human resources department for further information. You can also visit the IRS website here.

How do you add money to a Health Savings Account?

Here are two ways to fund your HSA:

If your HDHP is through work, your company can withdraw money from your paycheck – before taxes – and deposit it in your HSA.
In some cases, you may be covered by an HDHP that qualifies for an HSA, but need to set up your account through a financial institution, such as a brokerage or bank. If that’s the case, you can deposit the funds directly with that institution.

How much can you contribute to an HSA each year?

In 2024, you’ll be able to contribute up to $4,150 ($3,850 for 2023) to your HSA if the policy is just for you (aka, self-only coverage). If the policy covers your family, you’ll be able to contribute up to $8,300 ($7,750 for 2023). And if you're 55 or older, you could make an additional "catch-up" contribution of up to $1,000.

What are the other benefits of an HSA?

For one, the money is always yours. If you change jobs, if you change insurers or if you retire, it doesn’t change things: The money you’ve contributed travels with you.

Another benefit is that there’s no deadline to use the money. You’re not required to use the money in your HSA by a certain date or age.

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Can you use your HSA to pay for insurance premiums?

Generally speaking, HSA funds may not be used to pay premiums. But there are a few exceptions - for example:

If you’re unemployed and receiving unemployment benefits, you may be able to use the money to pay for your health insurance
If you’ve left your job but are keeping your company’s healthcare through COBRA (the legislation that may let you keep a former employer’s health coverage for a set amount of time).

See IRS Publication 969's "Distributions from an HSA" for other exceptions.

How long can you add money to your HSA?

As long as you’re covered by an HDHP, you can add money to your HSA.

What happens to your HSA if you no longer have an HDHP?

If you switch to a health care plan that is not an HDHP, you get to keep the money you’ve saved in your HSA. You can also continue to spend the money on qualified medical expenses. The only real change is that you won’t be able to add money to your HSA if your new plan is not an HDHP.

What happens if you use your HSA funds for something else?

If you're under 65, your withdrawals will be taxed as income, and you may face an additional 20% tax if you use the money for something that’s not on the IRS’s list of approved uses.

Over 65? You won’t have to pay the additional 20% tax, but your withdrawals could be taxed as income if you use the money for something that’s not a qualified medical expense.

If you have any questions about opening and using an HSA, consider speaking with a financial advisor or tax professional.

This article is for informational purposes only and is not a substitute for individualized professional tax advice. Individuals should consult their own tax advisor for matters specific to their own taxes. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Goldman Sachs Bank USA and Goldman Sachs & Co. LLC are not providing any financial, economic, legal, accounting, tax or other recommendations in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates. Neither Goldman Sachs Bank USA, Goldman Sachs & Co. LLC nor any of their affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements of any information contained in this document and any liability therefore is expressly disclaimed.