What is a Health Savings Account (HSA)?
A health savings account (HSA) is a tax-advantaged account that allows you to save for both future medical expenses and retirement. An HSA is a highly-beneficial tool for covering your medical expenses while enjoying tax benefits if you fit the requirements to contribute to one.
What are the HSA requirements?
Previously, in order to open an HSA, you had to have a high-deductible health plan (HDHP). While this is still true, OBBBA expanded eligibility to include other groups, which we’ll cover below.
In 2026, high-deductible health plans (HDHPs) are defined as:
- Health insurance plan must have at least a $1,700 deductible for individual coverage or $3,400 for family coverage
- The annual out-of-pocket maximum cannot exceed $8,500 for individual coverage or $17,000 for family coverage
What changes did OBBBA make to HSA requirements?
While the HDHP requirements still exist for those who receive health insurance through an employer, OBBBA widened HSA eligibility requirements, allowing for more individuals to qualify for an HSA who previously did not. This is particularly welcome news to people — like business owners or sole proprietors — who purchase their health insurance independently.
The IRS explains the HSA eligibility expansion made permanent by OBBBA:
- Telehealth and Remote Care Services: Individuals can receive telehealth and other remote care services before meeting the high-deductible health plan (HDHP) deductible while remaining eligible to contribute to an HSA, effective for plan years beginning on or after Jan. 1, 2025.
- Bronze and Catastrophic Plans Treated as HDHPs: As of Jan. 1, 2026, bronze and catastrophic plans available through an Exchange are considered HSA-compatible, regardless of whether the plans satisfy the general definition of an HDHP.
- Direct Primary Care Service Arrangements: Beginning Jan. 1, 2026, an otherwise eligible individual enrolled in certain direct primary care (DPC) service arrangements may contribute to an HSA. In addition, they may use their HSA funds tax-free to pay periodic DPC fees.
The following restrictions still apply:
- You cannot be enrolled in Medicare
- You cannot be claimed as a dependent on someone else’s tax return
- You cannot have a general-purpose health care flexible spending account (FSA)
What are the benefits of an HSA?
Pay for medical care
Use your HSA to cover qualified medical expenses. Bonus: funds from your HSA don’t just cover you. You can also use money from your HSA to pay for medical expenses of a spouse or any children you claim as dependents.
Qualified expenses include:
- Prescriptions
- Doctor’s office visits and co-pays
- Dental exams and treatment
- Vaccines
- Lab fees
- Physical therapy
- Vision exams
- Over-the-counter drugs
IRS Publication 502 offers a complete list of healthcare expenses you can cover using your HSA.
One important note: monthly premiums are NOT considered a qualified medical expense and cannot be covered using your HSA.
Save on taxes
With an HSA, you enjoy triple tax advantages:
- You are not taxed on your contributions.
- If you use a portion of your HSA balance to invest, you’re not taxed on gains.
- When you withdraw money to pay for qualified medical expenses, you are not taxed on those distributions.
If you own a business, contributions to the HSA can be made to you and your employees through payroll deductions (pre-tax). You can also open and contribute after-tax dollars to an HSA as an individual.
There are, however, annual contribution limits. For 2026, contribution limits are as follows:
- $4,400 for individuals
- $8,750 for families
Catch-up contributions of $1,000 annually are allowed for those over the age of 55.
Keep in mind: the annual contribution limit is cumulative. No matter who contributes to your HSA — whether your employer or yourself — the account itself cannot receive more contributions than the annual limit without facing penalties. Additionally, if you happen to have multiple HSAs, you still cannot exceed the total annual contribution limit across all accounts under your name.
The IRS is serious about those annual contribution limits. If you contribute more than the annual limit, you could be facing penalties of a 6% excise tax on excess contributions for each year it remains in the account. The excess contribution is also considered taxable income.
How can your HSA support retirement planning?
Health savings accounts are also excellent tools for retirement planning*.
Unlike other retirement accounts, you aren’t required to withdraw money at a certain age, making it a great tool to cover not only medical expenses, but also as an additional savings vehicle for retirement.
Grow your HSA by investing your funds.
Contributions alone aren’t the only way to grow your HSA. You can also invest your HSA funds and let your money grow untaxed.
Use your HSA for future medical expenses.
Another plus for HSAs: you don’t have to start withdrawing money once you reach a certain age. That means you can use your HSA specifically to plan for medical expenses in retirement. If you have the financial means to pay for medical expenses during your working years, you can consider letting your HSA grow untouched until needed in retirement.
Reimburse yourself for medical expenses in a later year.
Here’s another great feature of HSAs: you don’t have to reimburse yourself for medical expenses that occur in that year.
For example, let’s say that in 2023, you are billed for a colonoscopy. You decide to pay for that bill out of pocket, instead of withdrawing the funds from your HSA. In 2028, you then decide that you’d like to reimburse yourself for that bill. As long as you keep your medical receipt(s), you can reimburse yourself tax-free for that colonoscopy bill, putting extra money in your pocket. (Yes, record-keeping is important here!)
Withdraw money penalty-fee after age 65
Once you hit age 65, you can withdraw money from your HSA without penalty for any purpose. However, money withdrawn that is not used for medical purposes will be taxed as ordinary income. If you use your HSA funds for qualified medical expenses, no matter your age, you will not be taxed on the money used.
How long can you contribute to your HSA?
You can contribute to your account as long as you meet the HSA requirements. If your health insurance changes in a future year and you no longer qualify for an HSA, the funds in the account are still yours to keep and use; you just won’t be able to make any additional contributions.
How do you open an HSA?
Many banks, credit unions, and financial institutions offer Health Savings Accounts. Minimum deposits and account fees will vary by institution. Your CPA or financial advisor* can provide recommendations.
Can you have a Flexible Spending Account (FSA) and a Health Spending Account (HSA)?
A Flexible Spending Account (FSA) is a similar tax-advantaged health account, though these can only be employer-sponsored, so self-employed folks are disqualified. Many FSAs operate from a “use it or lose it” rule, in that funds must be used in a given calendar year. On the other hand, HSA funds roll over indefinitely.
Generally speaking, you cannot contribute to both an HSA or FSA at the same time. However, there are limited exceptions to this (like Limited Purpose FSAs), but for the sake of this article’s focus on OBBBA changes with HSAs, we won’t go in depth here. We recommend talking to your CPA or financial advisor* for the best plan for your situation.
Make your tax plan with Landmark CPAs
Don’t leave potential tax savings on the table. Work with a Landmark CPA to ensure you’re taking advantage of all tax savings tools available to you. Contact us to get started.
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