April 25, 2024

At times, High Deductible Health Plans can get a bad rap because you must meet your full deductible before the plan begins paying. While that can be a financial burden, you also gain the ability to contribute to a Health Savings Account, or HSA.

HSA Overview

A Health Savings Account (HSA) is a personal bank account that is owned by an individual. It will remain in your possession no matter where or if you are employed. If you are solely covered by a High Deductible Health Plan (HDHP), you can make pre-tax contributions to your HSA.

You may not contribute to an HSA if you are:

  • Covered by a health plan which is not an HDHP, even if coverage is secondary
  • Claimed as a tax dependent by another person
  • Enrolled in Medicare

Contribution Limits and Restrictions

For 2024, HSA contribution limits are as follows:

  • Individual: $4,150
  • Family: $8,300
  • 55+ Additional Catch-Up Contribution: $1,000

It is critical to remain at or under the contribution limit set annually by the IRS, or you will be subject to IRS penalties.

HAS funds can only be used for qualifying medical, dental or vision expenses. Utilizing or withdrawing HSA funds for non-eligible expenses comes with a hefty 20% tax penalty. And you will have to pay income taxes on the funds withdrawn.

Short-Term HSA Uses

HSA funds are commonly utilized for immediate medical, dental and vision expenses. Thes funds can cover health care expenses for your spouse and your tax dependents, regardless of if they are covered by a HDHP. Utilizing funds pre-tax offers the ability to lower your overall taxable income. Below is an example of the tax-advantaged savings:

Table demonstrating savings when using HSA accounts

Long-Term HSA Uses

Accumulating a balance your HSA offers other benefits. These funds continue to grow year after year, unlike the “use it or lose it” FSA funds.

Funds in your HSA can be invested and will grow tax-free. You will not pay taxes on earnings received from dividends, interest or capital gains.

After turning age 65, you can use your HSA funds for non-qualified health expenses without paying the 20% penalty- you will only be subject to ordinary taxes. Money spent on qualified health expenses remain tax-free.

As one final bonus after age 65, you can pay for Medicare premiums with these funds.

Pros and Cons

Pros of an HSA include:

  • Significant tax savings
  • Individual account ownership and unlimited rollover from year to year
  • Vast amount of qualified health expenses (Full list on IRS.gov)

Cons of an HSA can include:

  • Record keeping (validate all eligible expenses in case of an IRS tax audit)
  • Penalties if used inappropriately
  • HDHP coverage requirement for contributions


Generally, the benefits of contributing to an HSA far outweigh the drawbacks, as long as you appropriately utilize your Health Savings Account. If you are on an HDHP, consider contributing to an HSA. If you are an employer offering this benefit, educate and encourage your employees to take advantage of the benefits these accounts offer.