How a health savings account (HSA) works

What is an HSA?

It's a savings account designed to help you pay for health care expenses with some significant tax savings.

It works with a high-deductible health plan. You can use the account to pay for eligible expenses until the deductible is reached. It helps you save on health care and save for retirement.  

How does it work?

• Every dollar you put into an HSA is tax-deductible (you pay no taxes on it). You don't pay any taxes when you take the money out, either, as long as you use it to pay for health-related expenses.


  • Your income is $50,000 a year
  • You put $3,000 in an HSA
  • Your taxable income becomes $47,000
  • If you're in the 28% tax bracket, you save $840 in tax payments

• You can use your HSA to pay for eligible health care expenses until you reach your plan's deductible amount.*

• After that, you can use your HSA dollars to pay coinsurance or copays until you reach your maximum annual out-of-pocket limit.

• And after that, you can pay any eligible health care-related expenses with your HSA money.

• Your money can earn interest.

• You can also put your HSA balance into a variety of investments (like stocks, or mutual funds). Your dollars grow tax-free. Some people even use their HSA as a retirement account. 

• If your account is through your job, you keep it even if you change jobs. 

*Only high-deductible HSA-eligible health plans have an HSA option. These plans usually have lower premiums.

Watch a video about how HSAs work

See how a health plan and HSA work together.


Big plus: tax savings

• An HSA can save you money on health care and more, thanks to some great tax advantages.

• HSA contributions are tax-deductible.

• Withdrawals for health care expenses are tax-free, too.

• You earn tax-free interest on the money in your account. Plus, your account may give you a variety of investment options. 

• Your HSA balance rolls over at the end of the year, so you don't lose your money. It's always yours to spend, save and invest for any goal, even your retirement. 

• At age 65, you can start using your HSA dollars for any purpose, not just health care expenses. And your withdrawals are tax-free.

See an example of tax savings.


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