Open and maximize a Health Savings Account for tax-free healthcare savings. Covers HSA eligibility, choosing a provider, contribution strategies, investment options, and using your HSA as a long-term wealth-building tool.
hsa setuphealth savings accounthsa strategyhsa benefitshsa investinghsa tax advantageshigh deductible health plan
Last updated:
0 of 13 completed0%
Estimated time: 1-2 hours
Copied!
Understand HSA Eligibility
Confirm you are enrolled in a qualifying high-deductible health plan
To open and contribute to an HSA, you must be enrolled in a High Deductible Health Plan (HDHP). For 2026, the minimum deductible is 1,650 USD for individual coverage and 3,300 USD for family coverage. Maximum out-of-pocket limits are 8,300 USD (individual) and 16,600 USD (family). Check your health plan summary to verify it qualifies. Most employer-offered HDHP plans are HSA-eligible.
Verify you meet all other HSA eligibility requirements
You must not be enrolled in Medicare, not be claimed as a dependent on someone else's tax return, and not have any other non-HDHP health coverage (with some exceptions for dental, vision, and specific-disease insurance). If your spouse has a traditional health plan that covers you, you may not be eligible. Confirm all requirements with your plan administrator or IRS Publication 969.
Open Your HSA
Decide between an employer-offered HSA and an independent HSA
If your employer offers an HSA, they may contribute money to it (free money, similar to a 401k match). Some employers contribute 500-1,500 USD per year. If payroll deductions are available, contributions are pre-tax (avoiding both income tax and FICA taxes, saving an additional 7.65%). If your employer does not offer an HSA or their plan has high fees, you can open an independent HSA with Fidelity, Lively, or HSA Bank.
Choose an HSA provider with low fees and good investment options
Top HSA providers for investing include Fidelity (no monthly fees, no minimum balance to invest, wide fund selection), Lively (no monthly fees, partners with Schwab for investing), and HSA Bank (wide investment options, 2.50 USD monthly fee waived at 5,000 USD balance). If your employer uses a high-fee provider, you can transfer to a better provider once per year without tax consequences.
Fund your HSA up to the annual contribution limit
For 2026, the annual contribution limit is 4,300 USD for individual coverage and 8,550 USD for family coverage. If you are 55 or older, add an extra 1,000 USD catch-up contribution. Employer contributions count toward these limits. Contributions are tax-deductible (even if not made through payroll). You have until April 15, 2027 to make contributions for the 2026 tax year.
Maximize the Triple Tax Advantage
Understand the HSA's unique triple tax benefit
The HSA offers three tax advantages no other account provides: 1) Contributions are tax-deductible (or pre-tax via payroll), 2) Growth is tax-free (dividends, capital gains, interest), and 3) Withdrawals for qualified medical expenses are tax-free. No other account in the US tax code offers all three benefits. In a 22% tax bracket with state taxes, contributing the maximum family amount saves approximately 2,500-3,000 USD per year in taxes.
Pay current medical expenses out of pocket if you can afford to
The most powerful HSA strategy is to pay current medical expenses from your checking account while letting your HSA grow and compound tax-free. Save your medical receipts. You can reimburse yourself from the HSA at any time in the future, even decades later. A 1,000 USD medical bill paid out of pocket today, with the receipt saved, can be reimbursed from an HSA that has grown the 1,000 USD to 4,000 USD over 20 years.
Invest your HSA balance beyond what you need for near-term medical costs
Keep 1,000-2,000 USD in cash within the HSA to cover near-term medical expenses. Invest everything above that in low-cost index funds, just like a retirement account. Most HSA providers require a minimum cash balance before investing (typically 1,000-2,000 USD). Invested HSA funds grow tax-free and can compound for decades. A family maxing their HSA at 8,550 USD per year for 25 years at 7% returns accumulates approximately 540,000 USD.
Use Your HSA Strategically
Keep all medical receipts organized for future reimbursement
Create a folder (physical or digital) for every medical receipt, explanation of benefits (EOB), and bill. There is no deadline for HSA reimbursement. A 500 USD dental bill from 2026 can be reimbursed in 2046. This gives you decades of tax-free growth on money you would have spent anyway. Use an app or spreadsheet to track unreimbursed medical expenses and their amounts.
Know what qualifies as an HSA-eligible expense
Qualified expenses include doctor visits, prescriptions, dental care, vision care (including glasses and contacts), mental health services, lab tests, X-rays, medical devices, and hospital bills. Over-the-counter medications and menstrual products are also qualified since 2020. Cosmetic procedures, gym memberships, and health insurance premiums (with exceptions for COBRA and long-term care) are not qualified.
After age 65, use your HSA as a supplemental retirement account
After age 65, HSA withdrawals for non-medical expenses are taxed as ordinary income (like a Traditional IRA) but there is no 10% penalty. Withdrawals for medical expenses remain completely tax-free. Since healthcare is the largest expense in retirement (estimated at 315,000 USD per couple), a well-funded HSA provides significant value. Medicare premiums are a qualified HSA expense, making the HSA a powerful Medicare cost offset.
Maintain and Optimize
Review and adjust investment allocation annually
Like a retirement account, your HSA investment allocation should match your timeline. If you plan to use the funds within 5 years, keep more in cash and bonds. If you are building the HSA for long-term growth (10+ years), use a stock-heavy allocation (70-90% stocks). Most HSA providers offer target-date funds if you prefer a hands-off approach. Rebalance once per year.
Transfer to a better provider if your current one has high fees
You can do a rollover (once per year) or a trustee-to-trustee transfer (unlimited) to move your HSA to a lower-cost provider. Fidelity is the gold standard: no account fees, no investment minimums, and access to all Fidelity funds. If your employer contributes to a specific provider, keep that account for contributions and periodically transfer the balance to your preferred provider for investing.
Frequently Asked Questions
How much can I contribute to an HSA in 2026?
The 2026 contribution limits are 4,300 USD for individual HDHP coverage and 8,550 USD for family coverage. If you are 55 or older, add 1,000 USD. Employer contributions count toward these limits. If you become HSA-eligible mid-year, you can contribute the full annual amount under the last-month rule (you must remain eligible through December 31 of the following year). Excess contributions are subject to a 6% penalty.
What happens to my HSA if I change jobs or health plans?
Your HSA belongs to you permanently, regardless of job changes or health plan changes. If you switch to a non-HDHP plan, you can no longer contribute to the HSA, but you can still use existing funds for qualified medical expenses tax-free and continue investing the balance. The HSA has no 'use it or lose it' provision (unlike FSAs). Funds roll over year after year indefinitely.
Is an HSA better than an FSA?
For most people, yes. HSAs have higher contribution limits (8,550 USD family vs 3,050 USD FSA), no use-it-or-lose-it deadline, investment growth potential, and portability between jobs. FSAs are available with any health plan (not just HDHPs) and reduce payroll taxes. If you are not eligible for an HSA, a healthcare FSA is a good alternative, but you must spend the balance within the plan year (plus a small grace period or carryover).
Should I use my HSA for current medical expenses or save it?
If you can afford to pay medical expenses from your checking account, saving your HSA balance and investing it for long-term growth is the mathematically optimal strategy. A 3,000 USD annual medical expense paid out of pocket while the same amount grows in your HSA at 7% for 25 years becomes approximately 190,000 USD in tax-free medical funds. However, if paying out of pocket causes financial stress, using the HSA for current expenses is perfectly fine.