HSAs Explained: Who Qualifies and Why They’re So Powerful

A Health Savings Account (HSA) is a way to set aside money for future medical expenses and is one of the most tax-efficient savings tools available. You can use the funds at any time for qualified health expenses, giving you flexibility both now and in the future. 

When used correctly, an HSA is the only type of savings account that can be completely tax-free. That is, you’ll receive a tax deduction when you make a contribution, and if you use the money for qualified medical expenses, you don’t pay taxes when you make a withdrawal.

How much can you save?

In 2026, you can contribute up to $4,400 if you have individual coverage or $8,750 if you have family coverage. If you’re age 55 or older, you may also be eligible to make an additional $1,000 catch-up contribution.

Who is eligible for this kind of account?

To open and contribute to an HSA, you must:

• Be enrolled in a qualifying High-Deductible Health Plan (HDHP)
• Not be enrolled in Medicare
• Not be claimed as a dependent on someone else’s tax return

What is a High-Deductible Health Plan (HDHP)?

As the name suggests, HDHPs come with higher deductibles and higher out-of-pocket maximums, but they often have lower monthly premiums than traditional health plans. These plans can work well for individuals or families who have enough financial flexibility to cover potentially higher out-of-pocket medical costs.

For 2026, a qualifying HDHP must have:

• A minimum deductible of $1,700 for self-only coverage or $3,400 for family coverage
• An out-of-pocket maximum that does not exceed $8,500 for self-only coverage or $17,000 for family coverage

If you’re unsure whether your plan qualifies, your health insurance provider can confirm this for you.

What are the rules for using HSA dollars?

You can withdraw money from your HSA at any time to pay for qualified medical expenses for:

• yourself
• your spouse
• dependents claimed on your tax return

These individuals do not need to be covered under your HDHP for their expenses to qualify.

Unlike a Flexible Spending Account (FSA), HSA funds do not expire, and the medical expense does not have to occur in the same year you made the contribution. Some HSAs even come with a debit card, which can make paying for qualified medical expenses especially convenient.

If the withdrawal is used for a qualified medical expense, it is completely tax-free.

After age 65, you can withdraw money from your HSA for any purpose without paying a penalty. Withdrawals used for non-medical expenses will still be taxed as ordinary income, similar to withdrawals from a traditional IRA.

If funds are withdrawn for non-qualified expenses before age 65, the withdrawal is:

• subject to ordinary income tax
• subject to a 20% penalty

What if your health insurance changes?

If you are not enrolled in a qualifying HDHP in a future year, you will no longer be eligible to contribute to your HSA. However, the money already in the account can remain invested and continue growing, and you can still use it for qualified medical expenses at any time.

If you change your insurance in the middle of the calendar year to a non-HDHP, your contribution limit is reduced depending on the time of year. Be sure to discuss a change like this with your financial advisor.

What if your spouse carries the health insurance coverage?

Your spouse can hold the HSA account and make the full family contribution there.  Alternatively, you can open your own HSA. However, the family contribution limit applies across all HSAs combined. This means that together, you and your spouse cannot contribute more than $8,750 total, even if each of you have a separate HSA.

Is an HSA right for you?

Whether an HSA makes sense depends largely on the health care plans available to you and your overall financial situation. For many people, HSAs can be a valuable long-term planning tool, but they aren’t the right fit for everyone.

If you’d like help evaluating whether an HSA could make sense for you, we’d be happy to talk it through with you.

Have an HSA? Make sure you make the most of it.

To further maximize your HSA, you can invest some of the balance, allowing the account to grow over time and be used later—even in retirement. To learn more about maximizing your HSA’s potential, read more here: Stop Spending Your HSA Dollars – Legacy Financial Strategies.