The health savings account

How it works

To contribute, a person must be covered by a health plan with a deductible of at least $1,650 (2025, verified on the official page) for self only coverage or $3,300 (2025, verified on the official page) for family coverage, and must not be enrolled in Medicare or covered by a general health FSA. The yearly contribution cap is $4,300 (2025, verified on the official page) for self only and $8,550 (2025, verified on the official page) for family coverage, with an extra $1,000 (2025, verified on the official page) from age 55. Contributions through payroll skip income tax and payroll tax; contributions made directly are deducted on the return. The balance can be invested and grows untaxed. Withdrawals for qualified medical costs are tax free at any time, and a receipt from any year after the account was opened can be reimbursed years later, which is the receipts rule. After 65, withdrawals for anything else are taxed as income with no penalty; before 65 they carry a 20 percent addition.

What it gives

No other account skips tax on the way in, during growth, and on the way out.

The account belongs to the person, not the employer, and follows them between jobs.

Receipts saved today can be reimbursed tax free decades later, after the balance has grown.

What it costs, or where the catch is

Qualifying requires a high deductible plan, which means paying more out of pocket before insurance helps.

Money spent on nonmedical things before 65 is taxed and carries a 20 percent addition.

Contributions have to stop the month Medicare coverage begins, and Medicare can apply back six months at enrollment.

A worked example

Petra has family coverage with a high deductible plan and puts $500 a month into her HSA through payroll, which is $6,000 a year. At a 22 percent rate plus 7.65 percent payroll tax she avoids about $6,000 times 0.2965, or $1,779 in tax. She pays a $900 dental bill from her checking account and files the receipt. Ten years later she withdraws $900 tax free against that receipt, after the $900 has grown inside the account.

Where it goes wrong

The common miss is contributing in a month when coverage did not qualify, such as a month on a spouse's regular plan or the first month of Medicare, which creates an excess contribution with its own tax.

Who confirms it for you

For your own numbers, a CPA or enrolled agent. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

IRS Publication 969, Health Savings Accounts and Other Tax Favored Health Plans. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.