What is a Health Savings Account?

This is a brief but incomplete description of Health Savings Accounts. Please read the IRS publication https://www.irs.gov/forms-pubs/about-publication-969 for a complete description.


  • Two or more family members must be enrolled to access the family contribution limit.
  • Catch up contributions (for subscribers who are aged 55 by year-end) must make their contributions into an HSA in their own name (not their spouse’s). If both subscribers are eligible, each must have a separate HSA account.
Health Savings Account

Contribution limits are prorated monthly. (If you are enrolled for half the year, you can only contribute half the limit.

  • Contributions can be deducted pretax from your paycheck, lowering your taxable income. (You can also claim the deduction on your income tax return if you contribute funds directly.)

Recommended Contribution Strategy:

  • Consider making the maximum contribution with every paycheck.
  • The contribution can also be made as late as April 15th for the previous tax year, which might help you maintain eligible for a Premium Tax Credit under Obamacare.
  • Initially, we recommend you deposit funds in a basic, interest-bearing no-fee savings account at your local bank. Once you have saved enough in your HSA to cover your deductible, open a second HSA that has investment options. The site https://www.hsasearch.com/ contains a tool for searching for HSA account providers as well as other resources before you begin investing, but you can also discuss this with your current investment provider.


  • Withdrawals are tax-free so long as the funds are used for Qualified Medical Expenses irs.gov/publications/502
  • Funds withdrawn for non-qualified expenses are subject to taxation, penalties, and other consequences.
  • When the account owner turns 65, money in the account can be used for any reason without penalty but the account owner must pay taxes on any non-qualified use of the funds.

Recommended Withdrawal Strategy:

  • You can use the funds to pay for Qualified Medical Expenses for any person who you claim as a dependent on your tax return, even if the person is not enrolled in your HSA compatible health plan with you.
  • There is no requirement that you pay for Qualified Medical Expenses from your HSA Plus, any interest or investment gains on the HSA balance is tax free. So let the money in your HSA grow, pay for health costs out of another account, then reimburse yourself for the expenses from the HSA at any time in the future.
  • Be sure to save receipts so that if the I.R.S. requests proof that the money was spent on eligible expenses, you’ll have documentation – whether in an actual shoe box or in a digital version, which many H.S.A. providers now offer. If you do save paper receipts be aware that ink can fade. It’s also wise to have an online backup.

Additional HSA Facts

Can HSA owners wait to contribute until they have a known medical expense?

Yes, provided that the HSA owner has opened the HSA (to set the establishment date), remains eligible for an HSA (necessary to put more money into an HSA), and has not yet contributed the maximum limit for the year. Some HSA owners prefer to keep their HSA balance low and only fund the HSA when they know they will need the money. This approach may result in lost tax benefits as individuals have a limited period of time to contribute to an HSA for a particular tax year. Also this approach will not result in the building of a balance in the HSA over time to cover larger expenses. However, for individuals tight on funds, this approach will allow for minimizing the HSA cost while still getting the tax benefits on medical costs that are incurred.

Should HSA owners show their health insurance cards for medical services even if they are paying the full expense themselves with their HSA?

Some HSA owners make a logical but potentially expensive error in not using their medical insurance cards for HSA purchases. Even though HSA owners have to pay for the full medical expense when they are still below their deductible, they should show their insurance card to benefit from any discount the insurance carrier may have negotiated with the provider. Also, if an HSA owner shows an insurance card, the insurance carrier can track the expense against the deductible. Neither of these reasons may apply in a particular circumstance, but it’s relative easy to show the card and the worst case scenario in showing the card is that the providers says it does not need it or want it.

Can HSA owners who enroll in Medicare use their HSA to pay for Medicare premiums even though they are no longer HSA-eligible? 

The majority of Americans will start Medicare at age 65 and therefore lose eligibility to contribute new money to an HSA but does not stop a person with an HSA balance from continuing to use that balance for medical expenses. Once you turn 65, you can use the existing balance in your HSA to reimburse yourself for Medicare premiums that the Social Security Administration deducts directly from your Social Security check.

If you are a dependent on someone else’s tax return, are you eligible for an HSA?   

This rule serves primarily to prevent children from opening and funding HSAs which does create some interesting scenarios for adult children.

Is a college student eligible for an HSA of their own? 

Yes, but only if the college student is enrolled in the parent’s plan AND is NOT claimed as a dependent on their parent’s tax return. A college student can open his or her own HSA and can contribute up to the family HDHP limit if covered under the parents’ family HDHP and not a dependent. The parents would also be able to contribute the family limit. The student and the parents would not need to coordinate family HSA limits such that combined they stayed under the maximum. The downside to this is that the parents cannot use their HSAs to pay for the student’s qualified medical expenses because the student would not be a tax dependent (even though still on their insurance).

Are there valid reasons to establish more than one HSA? 

The most common reason to have multiple HSA is to allow for different investment choices and different account features.

If an HSA owner has family insurance coverage, is a joint HSA account allowed?  

All HSAs are individual accounts, even though the individual is enrolled in a “family” health plan, has a “family” maximum HSA limit and uses their HSA for their “family’s” medical expenses (spouse and dependents). Catch up contributions must be made in each individual’s named account.

Can any person make HSA contributions for an HSA owner?  

Employers get a deduction for HSA contributions. Spouses that file joint returns get the benefit of each other’s contributions. If someone other than an employer or spouse (for example: relatives, neighbors and even strangers) makes an HSA contribution on behalf of the HSA owner, the HSA owner gets the HSA deduction, not the person who contributed.

Can HSA fees be directly withdrawn from the HSA account? 

 HSA administrative fees may be deducted directly from the HSA and the HSA owner does not have to pay taxes or penalties on the amount of the fee. Paying fees by directly debiting the HSA allows HSA owners to pay the fees with tax-free dollars.

Can an individual move IRA money into an HSA? 

The law allows individuals a one-time transfer of IRA assets to fund an HSA provided: 1) they are eligible for an HSA, 2) they have a permitted IRA with sufficient funds, 3) they have not already completed an IRA to HSA funding distribution, and 4) the names and Social security numbers are the same on the IRA and HSA. The amount transferred may not exceed the amount of one year’s HSA contribution limit. The technical term for this transaction is a “qualified HSA funding distribution,” not “transfer.”