The Ultimate Guide to Health Savings Accounts (HSAs)

Breaking News: 2025 HSA Health Savings Account Limits are $4,300 for self-only and $8,550 for family coverage.

IRS revenue procedure 2024-25 lays out the details.

Making the most out of your Health Savings Account (HSA) can help you both now through tax-deductions and in the future through tax-free withdrawals for qualified medical expenses.

The Health Savings Account (HSA) is the only ‘triple tax-free’ account in the US!

The funds contributed to an account are tax-deductible when you put the money in, they grow tax-deferred over time, and if you use the funds for eligible health expenses the distributions are tax-free.

Read on to learn more about HSAs and how to get the most from these special types of accounts.

What is a Health Savings Account (HSA)?

An HSA is a type of savings account that allows you to set aside money on a pre-tax basis to pay for qualified medical expenses. This can include everything from doctor’s visits and prescriptions to dental and vision care. To be eligible, you must be enrolled in a high-deductible health plan (HDHP).

What are the Tax Advantages of a Health Savings Account (HSA)?

One of the most compelling benefits of a Health Savings Account is its triple tax advantage:

1. Tax Deductions: Contributions to your HSA are tax-deductible, reducing your taxable income in the current tax year.

2. Tax-Free Growth: The money in your HSA grows tax-free, meaning you don’t pay taxes on interest or investment gains.

3. Tax-Free Withdrawals: Funds can be withdrawn tax-free when used for qualified medical expenses, which can be a significant advantage as healthcare costs typically rise with age.

What are the HSA Max Contribution Limits for 2024?

The 2024 HSA individual (self-only) limit is $4,150.

The 2024 HSA family limit is $8,300.

The 2024 HSA catch-up contribution limit is $1,000 per person, over the age of 55.

You have until April 15^th, 2025 to make a 2024 plan year contribution, and get the tax deduction.

What are the HSA Max Contribution Limits for 2025?

The 2025 HSA individual (self-only) limit is $4,300.

The 2025 HSA family limit is $8,550.

What are the HSA eligibility rules?

You are eligible to contribute to an Health Savings Account if:

• You are covered under a high deductible health plan (HDHP), on the first day of the month,
• You have no other health coverage except what is permitted under other health coverage,
• You aren’t enrolled in Medicare,
• You can’t be claimed as a dependent on someone else’s current year tax return.

How to Maximize Your Health Savings Account HSA contributions

Since HSAs are the only triple tax advantaged account it helps to get the most out of your HSA.

Remember these 3 words: Max / Invest / Save.

Max your contributions

With the added advantages of the Health Savings Account over the Roth IRA and the 401(k), try to max your HSA contributions each year.

Quite commonly, when you contribute to an HSA through your paycheck, you might think that the max is only what went into the HSA through your payroll. That’s not the case, though!

The 2024 HSA individual (self-only) limit is $4,150. The 2024 HSA family limit is $8,300.

The 2024 HSA catch-up contribution limit is $1,000 per person, over the age of 55.

You might think, “I put in $100/paycheck, my employer put in $500 for the year, and I can’t contribute any more.” That’s only $3,100 in this example. If you have self-only coverage you could put in another $1,050 – and if you’re over 55 that’s another $1,000 on top of that!

And, if you have family coverage there’s $5,000+ you could add in this quite common scenario.

You might also think, I can’t contribute any more to my employer’s HSA. While that may be true (and it probably isn’t) you can open up an Health Savings Account with any provider – you are not tied to the default HSA provider that your employer uses for your payroll contributions and the employer contributions.

Another way to max your contributions is to leave them in there and not take a distribution right away in the same year.

Many people confuse the rule for Flexible Spending Accounts (FSAs), that you have to take your money out in the same plan year, with HSAs. 

You do NOT have to spend your HSA dollars in the same year that you put the money in!

You can let your HSA dollars stay in the Health Savings Account for future years. This is especially beneficial if you invest your money.

Invest Your HSA Contributions

Many people don’t realize they can invest their HSA contributions. Chances are they are defaulted to an interest rate account through their employer’s HSA provider.

Chances are there are other investment options that allow you to participate in the stock market within that employer chosen HSA provider.

If you are going to keep money in your Health Savings Account over the long term you should consider making use of those investment options.

If your current HSA provider doesn’t offer investment options, like many HSAs through a bank, you can transfer to a new provider. Imagine how your money could grow at even 5% in the market compared to close to 0% in the interest rate option.

Save Your Medical Receipts

You might be wondering, “how can I get reimbursed from my Health Savings Account, especially if I don’t take the money out in the same year that I contributed?” The answer is to save your medical receipts because you can reimburse yourself in the future for medical expenses you’ve already paid for out of pocket.

Here’s the rules:

• The medical expense must be from the year you established your HSA, or later.
• The medical expense hadn’t been previously paid or reimbursed from another source (like a health reimbursement account or flexible spending account as an example).
• The medical expense wasn’t deducted on your tax return in any year.

Perhaps you contribute $5,000 to your HSA in 2024. Later on, it grows to $7,000. If you have the receipts for $7,000+ in medical expenses that meet the rules, you can withdraw that money out to reimburse you for those qualified expenses.

How much can I contribute to an HSA if I’m only eligible for part of the year?

If you are eligible for an Health Savings Account for only part of the year then you can make a pro-rata contribution.

If you’re eligible for 6 months out of 12, then it’s ½ of the annual limit. If 2 months, or 7 months out of 12 then it’s 2/12 or 7/12.

If you’re eligible for an Health Savings Account in the last month of the year (on December 1) then you could contribute the full amount for the tax year and you don’t have to consider the pro-rata rule described above. You do have to be eligible for the Health Savings Account the entire next year to make use of this rule.

You might have changed coverages, maybe because you changed jobs, mid-way through the current year. As long as you are eligible on December 1 AND you remain eligible all the way through the entire next year then feel confident in making that maximum contribution for this current year!

Which medical expenses count as qualified expenses?

Generally speaking, an eligible health care expense can be reimbursed from your Health Savings Account account if:

• it is for you, your spouse, or another dependent
• it is one of the eligible expenses listed in IRS Publication 502, Medical and Dental Expenses.

How can you use an HSA for Retirement Savings?

While HSAs are primarily intended for healthcare expenses, they can also serve as a retirement savings tool. After the age of 65, you can withdraw funds from your Health Savings Account for any purpose without penalty—though you’ll pay income tax on withdrawals not used for qualified medical expenses. 

This is why many financial advisors suggest maxing out your Health Savings Account, even before maxing out your Roth IRA or 401(k).

It also makes sense a lot of times to both invest part of your Health Savings Account contributions into variable investments and to let them grow for the future vs. using each year for current health expenses. We’ll go through how to get the most out of your HSA later on.

How do HSAs work with Medicare?

Starting with the first month you enroll in Medicare you are no longer allowed to contribute to an HSA. You are able to withdraw funds from your Health Savings Account to reimburse qualified medical expenses AND you get to add one more type of expense to the list:

Your Medicare Part B premiums are eligible to be reimbursed from your Health Savings Account.

Your Medicare supplement insurance premiums, and your Medicare Prescription Drug Coverage (Part D) premiums are not able to be reimbursed, however.

For more official rules visit IRS Publication 969 (2023), Health Savings Accounts and Other Tax-Favored Health Plans.

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