If you have a high deductible health plan, you can make tax-free contributions to a health savings account (HSA) to help cover medical expenses. But you may wonder what an HSA is and if it’s the right healthcare payment option for you.

Health savings accounts (HSAs) are specialized savings accounts you can use for current or future healthcare expenses. Your contributions are tax-free.

HSAs were created in 2003 so that people with high-deductible health plans (HDHPs) could receive tax savings on their medical care. Today, they are a popular savings and medical expense option.

You also need an HDHP to use an HSA. Read on to learn more about this healthcare payment option.

An HSA is an account you can use to save for your healthcare expenses. You can set aside pretax money in your HSA and then use it to pay for medical expenses such as deductibles or copayments.

Paying for medical care with your HSA can help you save money because the money you deposit isn’t taxed. You can use an HSA only if you have a high-deductible health plan (HDHP), which is a plan that offers lower premiums in exchange for a higher deductible.

You can think about an HSA account as a way to get a significant discount on your medical costs,” Yulia Petrovsky, a financial planner with Modern Financial Planning, told Healthline.

“It allows you to put aside funds to pay for qualified medical expenses, up to an annual limit. Those funds avoid all taxes, except in California and New Jersey, where state income taxes are still applied.”

An HSA allows you to save money on your medical expenses. You can set aside money from your paycheck on a pretax basis and use that money toward your healthcare costs.

You can contribute money directly from your paycheck or contribute on your own at any time. Money contributed from your paycheck will come out before taxes are taken out.

Any money you contribute on your own can be counted as a tax deduction when you file your taxes. Any money you don’t spend will stay in the account.

This makes HSAs distinct from flexible spending accounts (FSAs). With an FSA, you lose any money you don’t use by the deadline, which is usually the end of the year.

How much can I contribute to an HSA for 2025?

In 2025, as long as you have an HDHP with a minimum deductible of $1,650 for an individual plan or $3,300 for a family plan, you can contribute up to $4,300 as an individual or $8,550 as a family 2025.

If you’re ages 55 years or older, you can contribute an additional $1,000 per year. Contribution limits include any funds your employer contributes to your HSA.

The minimum deductible and maximum contribution levels are set by the IRS each year. These limits apply to everyone and aren’t affected by your job status or income level. The only exception to the limit is for people over 55, who are allowed to contribute additional funds.

The money in your HSA stays in your account even if you leave your high-deductible plan, and you can use this money later for expenses like Medicare premiums in retirement.

Your employers can also contribute to the account, though their contributions count toward your annual limit. These contributions appear on your paycheck and W-2, and if you’re under the limit, you can still add funds for the previous year when filing taxes.

“That amount is then stated as employer contributions on Form 8889 of your tax return, allowing you to calculate what additional amount can still be contributed for that tax year,” said Petrovsky. “You can make any additional contributions by the due date of your tax return, usually April 15.”

HSAs have some significant advantages:

  • You can set aside tax-free money that you can use to pay medical expenses, even when you’re no longer enrolled in an HDHP
  • Your HSA is yours, and you can’t lose it by changing health plans or jobs.
  • There’s no set time you need to start making withdrawals.
  • You can keep money in your HSA for as long as you want.
  • Your account can grow with tax-free investment earnings.
  • Any qualified withdrawals you make are also tax-free.

That said, the biggest drawback to an HSA is that you need to have an HDHP, which isn’t necessarily a good choice for everyone.

For example, “for somebody living with a chronic illness that requires expensive care, the tax savings might not outweigh the high out-of-pocket medical costs associated with a high deductible plan,” Petrovsky told Healthline.

In addition, there are a few other possible downsides to an HSA to keep in mind:

  • Making contributions to the account can strain your budget.
  • An unexpected illness could wipe out the balance of your HSA.
  • HDHPs can lead to avoiding seeking needed medical care.
  • HSA money can only be used tax-free on medical expenses, or you face a 20% penalty.
  • Some HSAs are both savings and investment accounts, but market changes could reduce your investment.

HSAs are a great fit for healthy people looking for a savings plan and health insurance plan.

If you were considering starting a savings plan such as a 401(k) or an IRA, an HSA might be a better bet. This is because, while retirement plans let you save more each year and allow extra “catch-up” contributions starting at age 50, if you withdraw money before age 59 and a half, the money will be taxed and penalized.

On the other hand, HSAs let you use funds anytime for qualified medical expenses without penalty, and after age 65, you can withdraw for any purpose. That said, if you use the money for non-medical spending, it will be taxed as income.

“If you are eligible to make an HSA contribution and have the means, funding your HSA is a no-brainer,” Petrovsky explained. “If you have to pick between funding your IRA and an investable HSA, going for the HSA is a wise choice, because an HSA is the only triple-tax-advantage account out there.”

You’ll still be able to get vaccines and other preventive care covered, and you’ll have money saved if you do need to seek other medical care.

In order to decide, you can look at your current budget and medical expenses. If medical expenses are currently taking up only a small portion of your budget, an HSA could be a smart choice.

People nearing retirement might also be a good fit for an HSA. Remember that if you’re over 55, you can contribute an additional $1,000 each year. You won’t be able to make new contributions once you’re eligible for Medicare, but you will be able to spend your HSA funds on Medicare premiums and copayments.

HSAs are accounts you can use to set aside tax-free money for medical expenses. The money you contribute often earns interest or investment returns.

These earnings are also tax-free. You can keep money in your HSA for as long as you need to. You’ll need a high deductible health plan to use an HSA.

HSAs may be a good option for generally healthy people with few medical expenses.