Do You Need an HSA?

Whether you’ve gotten a new job or changed health insurance plans, it’s a good idea to think about whether you need a health savings account (HSA). 

An HSA isn’t compatible with all health insurance plans. But if you’re on a high-deductible plan, you may be eligible to contribute. And you might enjoy a world of benefits.

HSAs offer a tax break on the money you put in. You can also invest the money in your HSA and let it grow tax-free. And HSA withdrawals are tax-free provided they’re used to pay for qualifying medical expenses.

Having money in an HSA could make your healthcare costs easier to manage. That could be your ticket to avoiding medical debt at various stages of life if surprise bills pop up. Here, we’ll review how HSAs work so you can see if one of these accounts makes sense for you.

What Is an HSA and How Is It Different From an FSA?

Do you need an HSA? To answer that question, it’s important to understand how these accounts work. 

HSAs allow you to contribute pre-tax dollars to pay for healthcare expenses. In that regard, they’re similar to FSAs (flexible spending accounts). But there are some big differences.

FSAs give you a tax break on your contributions, but that's it. With an HSA, you get three different tax benefits:

• HSA contributions are made with pre-tax dollars

• Funds that you invest in an HSA get to grow tax-free

• Withdrawals from an HSA are tax-free as long as they're used to pay for qualifying medical expenses.

FSAs are typically “use it or lose it” accounts. If you don’t spend your balance by the end of your plan year, you risk forfeiting leftover money. HSAs let you use your money whenever you want. There’s no deadline.

In fact, HSAs encourage you to save some of your money for later, because you can invest unused funds and grow your balance that way. Investment gains in an HSA are tax-free, and so are withdrawals, as long as you use the money to pay for qualified medical expenses. 

The fact that HSAs offer more flexibility than FSAs could spell the difference between losing money in your account versus having that money serve an important purpose—to cover medical bills at times when you may be on a tight budget or are dealing with other debt. Having an HSA could actually lead to long-term financial security by giving you a cushion for covering medical bills when they start to pile up (unexpectedly or not).

Another big difference between HSAs and FSAs is that your health insurance plan doesn’t need to meet certain requirements to contribute to an FSA. But you can only participate in an HSA if you’re enrolled in a high-deductible health insurance plan that meets the requirements for a minimum deductible as well as for out-of-pocket maximums. These limits change every year, so your eligibility for an HSA could change over time.

High-deductible insurance plans tend to have lower monthly premiums than low-deductible insurance plans. However, your out-of-pocket costs outside of those premiums could be high. Your HSA can act as a cushion for those higher costs, helping you manage your money more easily and potentially making it possible to avoid medical debt.

Employers that offer healthcare plans with high deductibles typically offer HSAs, but not always. If yours doesn’t, you could open your own separate HSA. You can also do that if you buy your own high deductible plan on the marketplace. 

You decide how much to contribute each year to a HSA, up to the maximum allowed by the IRS. If your HSA is through your workplace, a portion of your pay usually goes into your HSA off the bat so you don’t have to think about it.

You usually get a debit card that’s linked to your HSA. You can use it to pay for qualified medical expenses your health insurance plan doesn’t cover. Qualifying medical expenses include, but aren't limited to:

• Deductibles

• Copays

• Dental expenses

• Eye exams and contact lenses

• Medical supplies

Here’s a comparison of HSAs and FSAs so you can better understand the differences.

You May Like These

Open Enrollment 2021: 7 Ways to Save Money on Healthcare Next Year

How to Deal With Collection Agencies

4 Questions to Ask a Debt Settlement Company Before You Sign Up

Do You Qualify for an HSA?

HSAs are available only to people enrolled in a high-deductible health insurance plan (HDHP), as defined by the IRS. HDHPs have a higher annual deductible than typical plans, and a limit on how much you may be required to pay for out-of-pocket expenses. 

To qualify for an HSA in 2026, your plan must have:

• A minimum annual deductible of $1,700 for individuals, or $3,400 for families

• An out-of-pocket maximum of $8,500 for individuals, or $17,000 for families

You typically can't have an HSA and an FSA at the same time. But you may be eligible for a limited-purpose FSA or a dependent care FSA along with your HSA. Limited-purpose FSAs cover out-of-pocket expenses such as dental and vision items, services, and procedures.

The nice thing about HSAs is that you can enroll at any time during the year as long as your health plan meets the right criteria. You can also change your contribution during the year. 

You cannot contribute funds to an HSA if you are on Medicare. However, you can use HSA funds you already have if you’re a Medicare enrollee.

HSA 2026 contribution limits

The amount of money you can contribute to an HSA in 2026 depends on your age and whether you have self-only coverage or family coverage. 

If you’re under 55, in 2026, the limit is:

• $4,400 for self-only coverage 

• $8,750 for family coverage

If you’re 55 or older, in 2026, the limit is:

• $5,400 for self-only coverage

• $9,750 for family coverage

It's common for companies that offer their employees an HSA to also contribute to one on their behalf. If you get an employer contribution, know that it counts toward your total limit for the year.

In other words, if you’re turning 40 in 2026 and have self-only coverage, the maximum HSA contribution you’re allowed is $4,400. If your employer puts in $2,000, you can only contribute $2,400 to your HSA that year. This differs from 401(k) plans for retirement, where employer contributions do not count toward your annual limit.

You should also know that you have until the following year’s tax-filing deadline to contribute to an HSA. So if you have a 2025 HSA, for example, and you haven’t maxed it out, you can do so until April 15, 2026.

Advantages of HSAs

HSAs are primarily used for medical expenses not covered by your health insurance plan. You can also think of them as tools that could help you reach your long-term financial goals and limit or avoid medical debt. 

If you’re wondering if you need an HSA, consider these advantages:

• Tax benefits. Contributions, investment gains, and withdrawals are tax-free when used for qualifying healthcare expenses. 

• Flexibility. You can use your HSA at any point without worrying about losing year-end unused funds, the way you can with an FSA. Once you turn 65, there are no penalties for non-medical HSA withdrawals. However, you pay taxes on non-medical withdrawals, just as you would with a traditional IRA or 401(k) plan withdrawal.

• Investment potential. You can keep your HSA in a cash account, but you could also invest the money. That could help your balance grow substantially over time, especially if you carry it forward for many years before taking a withdrawal. HSA funds can generally be invested in various assets, including stocks, bonds, mutual funds, and ETFs, once your balance reaches a certain threshold your provider sets. Some HSA providers also let you invest in assets like precious metals and CDs. Investment choices can vary from one provider to another, so you’ll need to see what specific choices you have.

• Portability. Unlike FSAs, which are tied to your company specifically, HSAs are portable. This means that if you leave your job, you can take your money with you. With an FSA, you risk forfeiting your balance if you leave your job (through your choice or not) and have money remaining in your account.

• Future security. An HSA could be a great way to add financial security to your retirement years. Many seniors find themselves paying more for healthcare than they did when they were younger. Having a dedicated account to cover those costs could help you financially later in life, and make it possible to avoid medical debt.

When does an HSA make sense for you?

An HSA typically makes sense for people who have a high-deductible health insurance plan, whether it's because that's the only option available or it's most economical overall.

If your employer offers a low-deductible health insurance plan with higher premiums or a high-deductible health insurance plan with lower premiums, and you don't tend to get sick often, then the second plan could make sense. But it could also pay to contribute to an HSA in case you end up having to meet your deductible, or you encounter unexpected medical bills.

An HSA also makes sense for people who are worried about paying for healthcare in retirement. HSA funds can be carried forward indefinitely. A smart strategy is to contribute regularly to an HSA during your working years, invest the money, and pay for your medical bills as they pop up if you can afford to do so. That way, you can reserve your HSA funds for retirement and allow that money to grow tax-free for many years.

Also, if you have health issues, it could make sense to open an HSA and use the money as a backup form of savings. And if you're in a high tax bracket and are eligible for an HSA, participating in one of these accounts could help you shield some of your income from the IRS, resulting in savings as well.

Even if you have frequent medical bills that are high, an HSA could make sense to open. You may not get to benefit from tax-free investment gains if you're dipping into that account on a regular basis to cover your costs. But you can still benefit from the money that goes into that account tax-free.

Looking for debt relief in Franklin, VA or across the country? The first step is the most important one—learn more.

Consider an HSA as Part of Your Overall Financial Plan

Do you need an HSA? It depends on your usual healthcare expenses. But there’s little reason not to contribute to an HSA, given the benefits. And you may find that having money in an HSA helps you better manage your medical expenses, avoid debt, and feel more financially secure overall.

If you’re interested in opening an HSA, the first step is to see if your employer offers one. If so, find out how to enroll from your benefits department. 

Typically, you’ll have to submit some paperwork and decide how much money you’re contributing. From there, your HSA contributions will typically be taken out of your paychecks directly, similar to how 401(k) plans for retirement are funded. Unlike FSAs, with an HSA, you can change your contribution amount during the year. 

If your employer does not offer an HSA but you qualify for one based on your health insurance plan, you can open an HSA yourself through most banks or financial institutions. You’ll need to transfer money into your HSA if you open one this way, and you’ll generally have the option to move funds electronically from a linked account, like a checking account. 

In fact, many HSA providers allow you to set up automatic transfers so that your account is funded regularly, the same way you might have your account funded regularly through payroll deductions through your employer.