What Is an HSA? How a Health Savings Account Works in 2026

A health savings account (HSA) is one of the few accounts in the US tax code that can give you a tax break when you put money in, while it grows, and when you take it out. It pairs with a high-deductible health plan, lets you pay for medical bills with pre-tax dollars, and never makes you forfeit unused money at year-end. For many workers it quietly becomes a second retirement account.

Below: who qualifies, the official 2026 and 2027 limits, what the 2025 tax law changed, and the mistakes that trigger penalties.

Key takeaways

• You need HSA-eligible health coverage to contribute.
• For 2026 the IRS limit is $4,400 for self-only coverage and $8,750 for family coverage, plus a $1,000 catch-up if you’re 55 or older.
• Money you don’t spend rolls over every year and stays yours if you change jobs.
• Withdrawals for qualified medical expenses are tax-free; other withdrawals are taxed and, before age 65, usually hit with an extra 20% tax.

What is a health savings account?

An HSA is a tax-exempt trust or custodial account that you open with a qualified trustee, typically a bank, credit union, insurance company, or brokerage, to pay or reimburse eligible medical costs. According to IRS Publication 969, you don’t need permission from the IRS to open one, and the account doesn’t have to be with the same company as your health insurer.

Three features make an HSA different from an ordinary savings account:

• It belongs to you. The account is portable. It stays with you if you switch employers or leave the workforce.
• There’s no “use it or lose it.” Contributions remain in the account until you spend them, year after year.
• It can be invested. Many providers let you put part of the balance into mutual funds or ETFs.

Who can open and contribute to an HSA?

To be an “eligible individual” for HSA contributions, the IRS says you must meet all of these conditions:

• You’re covered by a high-deductible health plan (HDHP) on the first day of the month.
• You have no other disqualifying health coverage (some coverage, such as dental, vision, and certain insurance types, is allowed).
• You aren’t enrolled in Medicare.
• No one else can claim you as a dependent on their tax return.

For 2026, an HDHP must have an annual deductible of at least $1,700 for self-only coverage or $3,400 for family coverage, and out-of-pocket costs (not counting premiums) capped at $8,500 or $17,000, per IRS Revenue Procedure 2025-19. HealthCare.gov also has a plain-English definition of an HDHP.

What changed in 2026

The tax law signed on July 4, 2025 (commonly called the One, Big, Beautiful Bill Act) expanded HSA access. The IRS summarized the changes in its guidance announcement and Notice 2026-05:

• Bronze and catastrophic plans: Starting January 1, 2026, bronze and catastrophic plans available as individual coverage through an ACA Exchange are treated as HSA-compatible, even if they don’t meet the usual HDHP deductible rules. The IRS clarified they don’t have to be bought through the Exchange itself to qualify.
• Telehealth: A plan can cover telehealth and other remote care before you meet the deductible without costing you HSA eligibility. This relief is now permanent for plan years beginning on or after January 1, 2025.
• Direct primary care: From 2026, enrolling in certain direct primary care arrangements no longer blocks HSA contributions, as long as the fees stay within the limits ($150 a month for one person, $300 for arrangements covering more than one), and you can pay those fees from your HSA tax-free.

HSA contribution limits for 2026 and 2027

The IRS adjusts HSA limits for inflation every year. These are the official figures from Rev. Proc. 2025-19 (2026) and Rev. Proc. 2026-24 (2027):

Rules from IRS Publication 969 that affect your limit:

• Catch-up contributions: If you’re 55 or older by the end of the tax year, your limit goes up by $1,000. If both spouses are 55+, each must make the extra contribution to their own HSA.
• Employer money counts: Employer contributions, including what you put in through payroll via a cafeteria plan, count toward the same annual limit.
• Married couples: If either spouse has family HDHP coverage, both are treated as having family coverage, and the family limit is split between you.
• Partial years: Your limit is generally prorated by the months you were eligible, although the “last-month rule” can let you contribute the full amount if you’re eligible on December 1, provided you stay eligible through a testing period.
• Medicare: Starting with the first month you’re enrolled in Medicare, your contribution limit drops to zero.
• Deadline: You can usually make contributions for a given year up to that year’s tax filing deadline, generally April 15 of the following year.

Over-contributing creates an “excess contribution,” subject to a 6% excise tax for each year it stays in the account unless you withdraw it (plus earnings) by your tax return due date.

The triple tax advantage, explained

An HSA is often called “triple tax-advantaged”:

1. Money goes in tax-free. Contributions you make yourself are deductible even if you don’t itemize. Contributions made through your employer’s payroll are excluded from your taxable income instead.
2. Growth is tax-free. Interest, dividends, and investment gains inside the account aren’t taxed while they stay there.
3. Qualified withdrawals are tax-free. Money you take out to pay qualified medical expenses isn’t taxed at all.

You report contributions and distributions on IRS Form 8889, and your HSA provider sends you Form 1099-SA for distributions and Form 5498-SA for contributions. Keep in mind that state income tax treatment can differ from the federal rules, so check how your state handles HSAs.

What can you spend HSA money on?

HSA funds can pay for “qualified medical expenses” for you, your spouse, and your dependents, as long as those costs aren’t reimbursed by insurance or another source. That generally covers deductibles, copays and coinsurance, prescriptions, dental care, vision care, and many medical supplies. IRS Publication 969 also confirms that menstrual care products count. The IRS keeps a detailed list in Publication 502, Medical and Dental Expenses.

Insurance premiums are usually not qualified, with a few exceptions, including COBRA continuation coverage, coverage while you’re receiving unemployment benefits, certain long-term care insurance, and Medicare premiums (other than Medigap) once you’re 65.

Two rules trip people up:

• Expenses before your HSA existed don’t count. Only expenses incurred after you established the account are qualified, so it pays to open the account as soon as you become eligible.
• Keep your receipts. You don’t send them with your return, but the IRS expects you to keep records showing that each withdrawal paid for a qualified expense that wasn’t reimbursed elsewhere or claimed as an itemized deduction.

If you use HSA money for something that isn’t a qualified medical expense, that amount becomes taxable income and is generally subject to an additional 20% tax. The extra 20% doesn’t apply to distributions made after you turn 65, become disabled, or die.

HSA vs. FSA: what’s the difference?

A health flexible spending arrangement (FSA) also lets you pay medical costs with pre-tax money, but it works very differently:

A regular health FSA generally counts as “other health coverage” and can make you ineligible to contribute to an HSA. If you’re switching from an FSA to an HSA, check with your benefits team about the timing.

Using a health savings account for retirement

Because unspent balances roll over and can be invested, some people treat their HSA as a supplement to a 401(k) or IRA: they pay current medical bills out of pocket, keep the receipts, and let the HSA grow.

After age 65, withdrawals for non-medical expenses no longer face the 20% additional tax. They’re simply taxed as ordinary income, similar to a traditional IRA, while withdrawals for qualified medical expenses stay tax-free at any age. If you’re comparing where to put retirement dollars, our guide to Roth IRA vs. Traditional IRA explains how those accounts are taxed.

Investing your HSA does carry market risk, and the value can fall. Money you expect to need for near-term medical bills is usually better kept in the account’s cash option, much like the cash you’d keep in a high-yield savings account.

The IRS also allows a once-in-a-lifetime “qualified HSA funding distribution”: a direct trustee-to-trustee transfer from a traditional or Roth IRA into your HSA, up to that year’s contribution limit. It reduces what you can otherwise contribute that year, and you must remain HSA-eligible for a 12-month testing period or the amount becomes taxable and subject to a 10% additional tax.

How to open an HSA in five steps

1. Confirm your plan is HSA-eligible. Check your plan summary or ask HR.
2. Pick a provider. An employer HSA with payroll deductions is often easiest, but you can open one with any qualified trustee and transfer the balance later.
3. Compare fees and options. Check maintenance fees, the cash interest rate, and investment choices and costs.
4. Set your contribution. Stay within the IRS limit, counting employer money.
5. Save receipts. A dedicated folder or app makes tax time and later reimbursements simple.

Before you lock money away for the long term, make sure you have an emergency cushion in place. Our article on why emergency funds matter covers how to build one.

Common HSA mistakes to avoid

• Forgetting employer contributions. They share your annual limit.
• Contributing after Medicare starts. Your limit is zero from your first Medicare month, including retroactive coverage.
• Assuming any plan qualifies. A high deductible alone doesn’t make a plan HSA-eligible.

Frequently asked questions

Can I keep my HSA if I change jobs or lose my HDHP coverage?

Yes. The account is yours. If you’re no longer covered by an HSA-eligible plan, you can’t make new contributions, but you can keep the balance and spend it tax-free on qualified medical expenses at any time.

What happens to unused HSA money at the end of the year?

Nothing. It stays in your account and rolls over automatically. There’s no annual forfeiture as there is with most FSAs.

Can I have more than one HSA?

Yes, but your total contributions across all of your HSAs can’t exceed the annual IRS limit. You can move money between HSAs through direct trustee-to-trustee transfers, and those transfers aren’t limited.

Can I use my HSA for my spouse or kids?

Generally, yes. Qualified medical expenses for your spouse and your dependents can be paid tax-free from your HSA, even if they aren’t covered by your HDHP.

Disclaimer: This article is for general educational purposes only and isn’t financial, tax, or legal advice. HSA rules can change, and your situation may differ. Check the official IRS sources linked above or talk to a qualified tax professional before making decisions.