Illustrated by Chelsea Miller
Last Updated December 21, 2023

Minimizing out-of-pocket medical expenses is tough when you have a high deductible health plan, but a health savings account can help. A health savings account (HSA) is a savings account where pre-tax money is deducted from your paycheck and pooled for medical expenses. Then you can use the money for qualified medical expenses, like deductibles, copayments, dental or vision costs, and prescriptions. This is one way to lower your overall health care costs.

The Difference Between An HSA and FSA

Your employer may offer an HSA along with other options like a flexible spending account, or FSA. Their acronyms are similar, but there are major differences.

First, funds in an HSA can be rolled over from year to year, unlike FSA money, which is use-it-or-lose-it. If you leave a job, you can take an HSA account with you, while funds in an FSA are forfeited if you don’t spend them before you leave.

If you leave a job, you can take an HSA account with you, while funds in an FSA are forfeited if you don’t spend them before you leave.

If your employer’s health plan doesn’t offer an HSA, you can set one up on your own through a bank or other financial institution. An FSA can only be set up through your employer, but unlike a HSA, an FSA works with a non-high deductible plan.

Qualifying for an HSA

You can contribute to an HSA if you have a high deductible health plan, or HDHP. According to, a plan is considered HDHP if the deductible is $1,600 or more for an individual or $3,200 or more for a family. If you aren’t sure if your health plan is an HDHP, talk to your manager or an HR representative.

Click here to read how this tool works, and for disclaimers.

Contribution Limits

There is a limit to the amount of money you can contribute to an HSA, and it generally increases every year. In 2024, the cap is $4,150 for individuals or $8,300 for families. Look at your plan's deducible for guidance on how much to contribute to an HSA.

Say your HDHP has a $15,000 deductible for your family. You could max out an HSA so that half of your deductible expenses are paid with tax-free dollars. This could save you up to $1,600 or more in taxes, if you plan to meet the entire deductible.

Employer HDHP Plans and HSAs

An HDHP may be the only health plan your employer offers, or it may be one of several choices. Some employers contribute money to an HSA as an incentive to choose the HDHP, because an HDHP and HSA combo costs them less overall. If you’re not working with an employer-sponsored plan, an HDHP may be a more affordable option for you, even considering the cost premiums and contributions to an HSA.

In some cases, HDHP-HSA plans give you more flexibility when choosing health care providers, but this isn’t always true. For instance, an employer plan may require you to use in-network insurance providers for expenses to count toward your deductible. If you purchase an HDHP yourself, it may be difficult to discover prices ahead of time and, you may not be able to negotiate the lower prices of a group plan.

Using HDHP Custodians

Typically, with an employer-sponsored HDHP, the employer selects a custodian for the HSAs. The custodian is a financial services company that administers the HSA plan. You can usually use a different custodian if you’d like, but you’re on the hook for admin costs your employer would otherwise cover.

Another perk of using the designated custodian is ease of arranging the direct deposit of pretax money. Typically, this money goes into a savings or money market account that makes it easier to access the money. You can either submit expenses for reimbursement or use an account debit card.

The downside of these types of accounts is that you don’t earn much interest.

Using an HSA for Retirement

Some people use an HSA as an investment strategy to pay for health care expenses in retirement. This only works if you can fully fund your HSA and pay out-of-pocket health expenses from your income instead of tapping into the HSA account. You can contribute up to the maximum yearly and let the balance grow, and when you turn 55 you can contribute an additional $1,000 in catch-up contributions until age 65.

If this strategy works for you, look into HSA investment options, which may include stocks or bonds. Most HSA plans require a minimum balance to invest funds, so check with your employer, custodian, or plan admin.

Before you turn 65, HSA funds can only be used for qualified medical expenses—otherwise withdrawals are subject to an additional 20% tax. After age 65, you can use HSA money for non-qualified medical expenses—anything, really—but you’ll owe state and federal taxes on the distributions. So there isn’t a tax penalty, you’ll just owe regular income tax.

It’s possible your health care costs will be higher in retirement, so you could also plan to use the money strictly for those costs and owe no additional tax.

The Choice is Yours

An HSA is a useful tool worth considering for anyone with a HDHP. It’s up to you to decide whether you want to use the funds to manage your current health care costs or to invest for the future.

While we hope you find this content useful, it is only intended to serve as a starting point. Your next step is to speak with a qualified, licensed professional who can provide advice tailored to your individual circumstances. Nothing in this article, nor in any associated resources, should be construed as financial or legal advice. Furthermore, while we have made good faith efforts to ensure that the information presented was correct as of the date the content was prepared, we are unable to guarantee that it remains accurate today.

Neither Banzai nor its sponsoring partners make any warranties or representations as to the accuracy, applicability, completeness, or suitability for any particular purpose of the information contained herein. Banzai and its sponsoring partners expressly disclaim any liability arising from the use or misuse of these materials and, by visiting this site, you agree to release Banzai and its sponsoring partners from any such liability. Do not rely upon the information provided in this content when making decisions regarding financial or legal matters without first consulting with a qualified, licensed professional.