What is an HSA?

A Health Savings Account (HSA) is like a piggy bank where you can deposit pretax contributions to help you pay for medical care.

Health Savings Account 101

Keep your healthcare dollars under your control and in your pocket.

To qualify for an HSA, you must enroll in an IRS-qualified High Deductible Health Plan (QHDHP). These group plans typically offer lower premiums and lower out-of-pocket maximums in exchange for a higher deductible.

HSA Advantages

  • You decide how much money to save.
  • Pre-tax contributions lower your taxable income
  • Tax-free growth earns interest and build savings on a tax-free basis.1
  • Unused funds carry over year after year.
  • The money stays with you if you change employers or change to a different health plan.
  • Funds can be withdrawn for any purpose without penalty after reaching age 65 (taxes may apply).
  • Use the money to pay for qualified medical expenses for you and your family.

Can I open an HSA?

To participate in an HSA, individuals must meet the following requirements:

  1. Be enrolled in an IRS-qualified High Deductible Health Plan (QHDHP)
  2. Not be claimed as a dependent on someone else’s tax return
  3. Not covered by other health insurance or enrolled in Medicare

How do I open, and make contributions to, an HSA?

First, check with your employer, who may already be working with an HSA administrator. They may offer to withhold pre-tax money from your paycheck to contribute to your HSA on your behalf, which makes the tax savings advantages even easier.

Even if your employer does not assist with opening your HSA, you can still open one by contacting your bank or any HSA administrator of your choice. They will assist you with how to make contributions and withdrawals, often with a debit card.

Contributions to your HSA must stop if you are no longer enrolled in a QHDHP or when you become eligible for Medicare. However, you can continue to use the money in your account to pay for qualified medical expenses tax-free for the rest of your life.

IRS Limits

The IRS sets limits on how much you can contribute tax-free each year. The IRS also determines what type of health plan qualifies as a QHDHP. These limits typically change each year.

  2019 2020 2021

HSA Limits

Individual

Family

Individual

Family

Individual

Family

Maximum HSA Contribution2

$3,500

$7,000

$3,550

$7,100

$3,600

$7,200

  2019 2020 2021

QHDHP Limits

Individual

Family

Individual

Family

Individual

Family

Minimum QHDHP Deductible3

$1,350

$2,700

$1,400

$2,800

$1,400 
(no change)

$2,800 
(no change)

Maximum Out-of-Pocket3

$6,750

$13,500

$6,900

$13,800

$7,000

$14,000

Qualified Medical Expenses

Your HSA funds can be used to pay for almost all healthcare expenses. Below are some common examples of qualified and nonqualified expenses. Review IRS Publication 502 for more information.

Qualified Medical Expenses

  • Dental services
  • Eyeglasses/contacts
  • Hearing aids
  • In vitro fertilization
  • LASIK surgery
  • Long-term care premiums
  • Medical Deductible, Copayments and Coinsurance
  • Prescription drugs
  • Wheelchairs

Nonqualified Medical Expenses

  • Burial/Funeral expenses
  • Cosmetics
  • Cosmetic surgery
  • Health club fees
  • Life insurance premiums
  • Maternity clothes
  • Spa treatments
  • Special food and beverages

1Tax advantages vary by state, check with your tax advisor regarding your specific circumstances.

2This is the maximum amount that can be contributed to your HSA tax-free. Individuals age 55+ can contribute an extra $1,000 each year as a “catch-up contribution.

3These are limits set by the IRS. The actual deductible amount and out-of-pocket maximums are determined by the QHDHP that your employer offers and must be within these limits.