How to Start a Health Savings Account

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A Health Savings Account (HSA) provides a way to save money for health costs like copays, deductibles, prescription medications, over-the-counter items, and more. Here's what you need to know to choose a good HSA and where to get one.

Key Takeaways

  • You must be enrolled in a qualified high deductible health plan to open an HSA.
  • You can set up an HSA with many types of financial institutions, including banks, credit unions, brokers, and insurance companies.
  • Consider factors such as administrative fees, investment options, and what the withdrawal process looks like before opening an account with an institution.

What Is a Health Savings Account (HSA)?

A Health Savings Account (HSA) is a special type of tax-free savings account that you can use to save money for medical expenses if you're enrolled in a qualified high deductible healthcare plan. Health Savings Accounts have many benefits and can double as a long-term savings tool if you don't use the money in the plan for medical expenses.

You'll have to pay for any medical expenses up to your deductible amount before your insurance coverage kicks in if you have a high deductible health insurance plan. Your HSA will help you pay for the medical expenses that the insurance policy doesn't cover. But that's not all it can do for you.

What Are the Advantages of an HSA?

An HSA can help you pay for your medical needs in the short term, and it can help you reach your savings goals in the long term. Consider these five advantages of an HSA.

Money Goes Into Your HSA Before It's Taxed

As with other pre-tax savings schemes like IRAs and 401(k) plans, contributions made to your HSA reduce your taxable income. For the calendar year 2022, individuals can direct $3,650 of their pre-tax income into an HSA. For families, the limit is $7,300. These thresholds increase to $3,850 and $7,750 respectively in 2023.

Interest Earnings Are Tax Free

Any earnings from investments in the account are likewise tax free.

Unused Funds Carry Over to the Following Year

Funds in your HSA are not "use it or lose it." These accounts can grow to thousands of dollars through contributions and investments if you haven't tapped the funds for medical expenses.

Withdrawals for Medical Expenses Are Tax Free

You can do so without incurring tax if you need to withdraw funds from your HSA to cover qualified medical expenses. But withdrawals for non-medical expenses are subject to income tax and a tax penalty (20% of the amount withdrawn).

Non-Medical Withdrawals Made at Age 65-Plus Aren't Penalized

If you are fortunate enough to reach age 65 with a healthy HSA, you can access those funds for any use without a tax penalty. But those withdrawals must be for qualified medical expenses to be completely tax free. Non-medical distributions are taxed as regular income.


Some employers offer Flexible Savings Accounts (FSAs) rather than or in addition to HSAs. FSAs offer many similar perks, but it's worth comparing the differences between HSAs and FSAs before you enroll. 

Tips for Choosing a Good HSA

Because HSA accounts are not only used to reimburse medical expenses but can also act as savings vessels for your future if you don't use them, it is important to think of this as a type of retirement investment account.

  • Beware of high administrative charges or fees. 
  • Ask if the administrative fee is waived when you have a specific minimum balance. 
  • Ask if you'll be able to manage your account online.
  • Ask if you'll be provided with a debit card to access your funds.
  • Find out what the process is for withdrawals or reimbursements.
  • Ask about the investment options for your account.

A Note About Fees

You don't need to have a minimum balance to open and maintain an HSA, but some administrators (the bank, credit union, or insurance company that manages your HSA) may waive fees once you have reached a minimum balance. A plan with a lower minimum balance can save you a lot of money in fees when you're just starting out with your HSA.

Where To Set Up an HSA

Starting a Health Savings Account isn't difficult. You can set up your account with:

  • Banks
  • Brokers and financial advisors
  • Credit unions
  • Insurance companies


Banks, credit unions, and insurance companies will each have their own specified plans to offer you. Brokers will have several options. Ask your bank about its HSA plans, and then speak to a broker who can review additional options.

In the end, doing a little bit of research can help you earn more money in interest, spend less in fees, and give you more control of your account.

Frequently Asked Questions (FAQs)

Does my HSA contribution limit increase if I'm retired?

You can make a catch-up contribution of $1,000 over and above the normal contribution limits if you're age 55 or older. Unlike an IRA contribution, you don't need earned income to be eligible for an HSA contribution.

Is a high deductible health plan or an HSA a good idea?

HSAs are a good idea if you have access to one, according to Caitlin Donovan, Senior Director of Public Relations at National Patient Advocate Foundation. With the future of healthcare plans a little uncertain, one thing that has favorable futures is the potential expanded use of HSAs.


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  1. IRS. "Publication 969 (2021), Health Savings Accounts and Other Tax-Favored Health Plans."

  2. IRS. "Rev. Proc. 2021-2," Page 1.

  3. IRS. "Rev. Proc. 2022-24." Page 1.

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