Health Savings Accounts

Quick Answer

HSAs let a High-Deductible Health Plan enrollee set aside money that is deductible going in, grows tax-free, and comes out tax-free for qualified medical expenses; the exam calls this the "triple tax advantage." The account is portable, rolls over with no use-it-or-lose-it deadline, and after age 65 non-medical withdrawals lose their 20% penalty and are taxed like a Traditional IRA.

Health Savings Accounts (HSAs) are tax-advantaged accounts for paying qualified medical expenses. Often called the account with a "triple tax advantage".

Who Is Eligible to Contribute?

To contribute, an individual must have qualifying High-Deductible Health Plan (HDHP) coverage on the first day of the month, have no disqualifying other health coverage, not be enrolled in Medicare, and not be claimable as someone else's tax dependent. Permitted additional coverage, such as separate dental or vision coverage, does not disqualify the individual.

Individual-market bronze and catastrophic plans available through an Exchange are treated as qualifying HDHP coverage even if they do not meet the ordinary deductible and out-of-pocket limits below. They need not actually be purchased through the Exchange.

A qualifying direct primary care arrangement also does not disqualify an otherwise eligible contributor. It must provide only qualifying primary care for a fixed periodic fee, with aggregate monthly fees no more than $150 for one person or $300 for multiple people.

General-anesthesia procedures, most prescription drugs, and nonroutine laboratory services fall outside that primary-care definition. The fee ceilings determine eligibility for new contributions, not the amount that can be reimbursed tax-free from an existing HSA.

2026 HDHP definition:

Self-only: Minimum Deductible $1,700; Maximum Out-of-Pocket $8,500

Family: Minimum Deductible $3,400; Maximum Out-of-Pocket $17,000

What Are the Contribution Limits?

2025: Self-Only $4,300; Family $8,550

2026: Self-Only $4,400; Family $8,750

Catch-up (age 55+): Additional $1,000 (both self-only and family)

What Is the Triple Tax Advantage?

The "triple tax advantage" is the exam's defining phrase for HSAs:

1. Contributions are pre-tax (payroll) or above-the-line deductible (if made directly)

2. Earnings grow tax-free

3. Qualified distributions are tax-free

Think of it this way: Money goes in tax-free, grows tax-free, and comes out tax-free (for medical expenses). No other account type offers all three benefits at once.

What Medical Expenses Qualify?

Deductibles, co-pays, and prescriptions

Dental care and vision care

Certain over-the-counter items

The care must be for the account holder, their spouse, or a qualifying dependent, and the expense must be incurred after the HSA was established. Only the amount not reimbursed by insurance or another source qualifies. An expense reimbursed tax-free from the HSA cannot also be claimed as an itemized medical deduction.

Insurance premiums: as a general rule, HSA funds cannot pay health insurance premiums. Five exceptions are qualified:

COBRA continuation coverage premiums

Health coverage premiums while receiving unemployment compensation

Medicare premiums (Part A, B, C, or D) and other health insurance premiums once the account holder is age 65 or older (Medigap/Medicare supplement premiums do not qualify)

Long-term care insurance premiums, subject to IRS age-based dollar limits (not the full premium)

Qualifying direct primary care service arrangements

Direct-primary-care reimbursement has no specific fixed-fee dollar ceiling. An otherwise qualifying arrangement charging above $150 individual/$300 multi-person per month can still be paid tax-free from an existing HSA. Enrollment in that over-ceiling arrangement prevents new contributions while it continues; it does not turn the fee into a nonqualified expense.

Exam Tip: Gotchas

Deductibles and co-pays are not premiums. They can qualify when they meet the normal reimbursement conditions above. Premiums are excluded by default; only the five exceptions above can qualify.

What Happens to Non-Qualified Withdrawals?

Before age 65: Ordinary income tax + 20% penalty

After age 65: Ordinary income tax only, no penalty. Effectively functions like a Traditional IRA for non-medical expenses.

Exam Tip: Gotchas

After age 65, non-medical HSA withdrawals = taxable income only, no penalty. Same tax treatment as a Traditional IRA.

Is an HSA Portable?

Account is portable: belongs to the individual, not the employer; stays with the account holder if they change jobs

HSA funds roll over indefinitely; no "use it or lose it" rule (unlike Flexible Spending Accounts)

Can invest HSA funds in stocks, bonds, and mutual funds (similar to a retirement account)

Cannot contribute to an HSA once enrolled in Medicare

How Does an HSA Compare to an FSA?

Tax treatment: HSA Triple tax advantage (contributions, growth, withdrawals); FSA (Flexible Spending Account) Two of three: pre-tax contributions and tax-free qualified withdrawals; no tax-free growth

Rollover: HSA Unlimited rollover; FSA Generally "use it or lose it" (employer may allow a limited carryover, indexed annually)

Portability: HSA Yes: belongs to individual; FSA No: tied to employer

HDHP required: HSA Yes; FSA No

Investment options: HSA Yes (stocks, bonds, funds); FSA No

Contribution source: HSA Employee and/or employer; FSA Employee (employer may contribute)

Annual contribution limit (2026): HSA $4,400 self-only / $8,750 family; FSA $3,400 employee salary reduction

Exam Tip: Gotchas

HSA triple tax = pre-tax contributions + tax-free growth + tax-free medical withdrawals. No other account type offers all three benefits simultaneously.

An FSA is not a zero-benefit or one-benefit account. It shares two of the HSA's three tax benefits (pre-tax contributions and tax-free reimbursement for qualified medical expenses). The one it lacks is tax-free growth, since FSA balances are held as cash and are not invested.

FSA is tied to the employer. HSA is portable and belongs to the individual.

What Should You Check on Exam Day?

HSA contributions require qualifying coverage, no disqualifying other coverage, no Medicare enrollment, and no claimable-dependent status. Qualifying bronze/catastrophic plans and direct primary care have special treatment.

The triple tax advantage is unique to HSAs: pre-tax or above-the-line-deductible contributions, tax-free growth, and tax-free qualified withdrawals.

Deductibles and co-pays can qualify for unreimbursed care incurred after the HSA was established. Premiums require a listed exception; non-Medigap health insurance can qualify at age 65 or older, even during employment.

Non-qualified withdrawals before 65 cost ordinary income tax plus a 20% penalty; after 65 the penalty disappears and the account is taxed like a Traditional IRA.

HSA funds roll over indefinitely and stay with the individual across job changes; an FSA is generally use-it-or-lose-it and tied to the employer.

An FSA has two of the HSA's three tax benefits (pre-tax contributions, tax-free qualified withdrawals), not one; the growth leg is what it lacks.