What is an HSA?

What is an HSA, and how does it work?

A Health Savings Account is designed to help individuals with HSA-qualified HDHPs pay for medical expenses efficiently and strategically. HSAs are unique because they offer three layers of tax savings where you can save and invest money:

1. Tax-free contributions (or tax-deductible if made with after-tax dollars).
2. Tax-free earnings on interest or investments.
3. Tax-free withdrawals for qualified healthcare expenses.

Because unused funds roll over indefinitely and never expire, HSAs can serve both immediate needs and long-term financial planning.

Who is eligible to enroll in an HSA?

You may open an HSA at any time, but the IRS sets specific rules for contributing to one. To contribute, all of the following must be true:

IRS contribution eligibility requirements

• You must be covered by a high-deductible health plan (HDHP), otherwise known as an HSA-qualified health plan.
  • For 2026, this generally means your health plan must have a minimum deductible of at least $1,700 for self-only coverage (or $3,400 for family coverage), and an out-of-pocket maximum not exceeding $8,500 for self-only coverage (or $17,000 for family coverage).
• You cannot have other non-HSA-qualified health coverage, such as:
  • A spouse’s non-HSA-qualified health plan
  • Medicare
  • TRICARE
• You cannot be claimed as a dependent on someone else’s tax return.

Coverage that does not disqualify you

These supplemental policies are permitted:

• Accident insurance
• Hospital indemnity insurance
• Dental or vision insurance
• Long-term care insurance
• Workers’ compensation coverage

Even if you cannot contribute, you may still open and move existing HSA funds to a provider with better tools, investment features or interest rates.

How do HSA contribution rules work? (2026 Limits)

Assuming you are eligible to contribute to an HSA (see IRS requirements above), anyone may contribute to your account. Common sources of funding include:

• Employer
• Payroll deductions you elect to have withheld from your paycheck
• Direct Contributions you make from your account, for example transferring from a checking account into your HSA
• Family members

Regardless of the source of the funds, you receive the contributions into your HSA tax-free. Additionally, all funds deposited in your HSA are 100% vested from day one, meaning that you own the funds even if you change insurance plans, change jobs or stop working.

The IRS sets a limit to the amount of money that can be contributed to your HSA each year. This limit applies to all contributions made to your account, no matter the source. It is important for you to keep track of the contributions each year, and make sure you don’t go over the IRS limit to avoid tax penalties.

2026 HSA contribution limits

It is important to track your contributions to avoid overfunding, which may trigger IRS penalties

How do I pay expenses with my HSA?

HSAs offer exceptional flexibility: there are no filing deadlines, no forced withdrawals and no use-it-or-lose-it rules.

Depending on your HSA administrator, you may pay or reimburse expenses using:

• HSA Debit Card. Using a debit card tied to your HSA is a convenient way to pay for qualified healthcare expenses at the point of sale. Just swipe your card to pay the provider and the funds will be deducted from your HSA.
• ATM withdrawal (if supported). If you have paid out-of-pocket for an eligible expense and would like to reimburse yourself from your HSA, you may be able to withdraw cash from an ATM to pay yourself back.
• Direct Deposit reimbursement. Another option for paying yourself back for expenses you have already paid out-of-pocket is to use direct deposit. With this option, when you want to reimburse an expense, you can request to have the amount you paid transferred from your HSA to the bank account of your choice.
• Online Bill Pay for doctors or dentists. To send a payment directly to a provider such as a doctor or dentist, you can request to have a payment made from your HSA and mailed directly to the provider.

There is no wrong way to reimburse your expense. Choose the reimbursement method that works best for your situation. Just be sure to keep receipts for tax documentation.

Which healthcare expenses are HSA eligible?

The IRS outlines the specific medical, dental, vision, and other expenses that qualify for HSA distributions in Publication 502, Medical and Dental Expenses.

While common medical and dental expenses such as ambulance rides, bandages, dental treatment, eyeglasses and prescriptions are all specifically noted in Publication 502, you may be surprised to find that you can use your account to pay for many other qualified healthcare expenses as well.

HSA-eligible expenses can include but aren’t limited to:

• Home Improvements: Capital expenses with the main purpose of making improvements to your home for medical reasons, such as installing ramps, railings or modifying doorways to make them more accessible.
• Home Care: Home care and nursing expenses related to the care of an individual with a medical condition.
• Lodging: Expenses for lodging at a hospital or other medical facility.
• Addiction Treatment: Addiction-related expenses, such as costs relating to alcoholism or smoking cessation programs.
• Weight Loss: Weight loss expenses, specifically when a physician diagnoses you with obesity, hypertension or heart disease and recommends a weight-reduction program.
• Common Products: Nonprescription and over-the-counter medications, feminine hygiene products, contacts and vision care.
• And much more

For a user-friendly, searchable list of eligible expenses, visit the Associated Bank HSA Store and scroll down to the eligible expense list.

What are the pros and cons of using an HSA?

As with most tax-advantaged accounts, there are several pros and some cons that come with using an HSA.

Advantages of an HSA

There are many advantages to opening and contributing to an HSA that can make this an important piece in your financial plan.

• Triple tax-advantage. This is the greatest benefit, allowing you to contribute tax-free, grow tax-free and withdraw tax-free (for qualified expenses).
• Generous contribution limits. The IRS determines the contribution limits that apply and adjusts them each year. While the contribution limits are lower than IRAs or 401(k)s, they’re still significant enough to build a hefty nest egg, provided you start early and save consistently.
• Portable and 100% vested immediately. The money is entirely yours from day one, regardless of job or health plan changes.
• Investment growth potential. Depending on the administrator you choose, you may be able to grow your account balance with earnings from interest and/or investments. As mentioned earlier, your money goes in tax-free and grows tax-free allowing you to accelerate your savings in an environment perfect for long-term growth. 

These features make HSAs valuable both for short-term expenses and long-term planning.

Disadvantages of an HSA

The primary disadvantage of an HSA is that not everyone can have one.

• Eligibility Restrictions: Not everyone can have one. You must meet all the specific IRS requirements, including enrollment in a qualified HDHP, to contribute.
• The HDHP Trade-off: High-deductible health plans (HDHPs) trade lower monthly premiums for higher deductibles. This means you will usually save money on the monthly cost for the insurance, but you may have to pay more out-of-pocket before the insurance begins to pay for some or all of your healthcare costs.

The best way to offset this disadvantage is by opening and funding an HSA. This will allow you to save tax-free, earn tax-free and spend tax-free dollars to pay for your out-of-pocket healthcare costs.

Use an HDHP and an HSA to further your financial goals

High-deductible health plans (HDHPs) are an increasingly common way for Americans to save money on their healthcare costs. Often, they’re paired with a health savings account (HSA) to save for out-of-pocket healthcare expenses as well as further utilize the tax advantages and financial stability offered by an HSA.

High-deductible health plans come with four major benefits that make them appealing:

1. HDHPs come with lower monthly premiums, potentially saving you hundreds, if not thousands, of dollars per year in upfront costs.
2. These plans will usually pay for preventive care such as annual physicals, flu vaccinations and more, meaning many common medical expenses are covered without having to pay the deductible first
3. HDHPs will protect you from large medical bills if you or a covered family member gets seriously sick or hurt–once you pay the deductible, your plan will pay some or all the remaining expenses.
4. Your HDHP allows you to save money on a tax-free basis in an HSA to pay healthcare expenses for you and/or your family members.

By saving tax-free dollars in your HSA, you will be able to use those funds to pay for any expenses for yourself and your family members, including:

• Doctors visits
• Laboratory and testing
• Hospital
• Pharmacy
• Dental
• Vision

In fact, you can save money on many expenses you are paying today using tax-free money from your HSA. For a searchable list, check out The Complete HSA Eligibility List.

Combining your HDHP with an HSA gives you the best of both worlds – lower health insurance premiums plus tax-free savings to pay for healthcare expenses.

Choosing an HSA partner that puts your needs first

An effective HSA provider should offer:

• Competitive interest rates
• Multiple investment options
• Easy access to funds through an HSA debit card
• Digital tools for managing contributions and reimbursements

Associated Bank provides the information, tools and resources needed to help customers make informed financial decisions.

To learn more or open an HSA:

• Call 800-270-7719
• Schedule an appointment online
• Visit any Associated Bank location

Our specialists can help you navigate the rules, maximize benefits and use HSAs to support your financial goals.

HSA frequently asked questions

Below, we’ll answer a few of the most commonly asked questions we receive about health savings accounts.

Note, however, that the rules and regulations surrounding HSAs are often nuanced, so it’s wise to speak with your HSA provider if you have specific questions about your account or options.

What’s the difference between an HSA vs FSA?

The main difference between HSAs and FSAs is ownership and rollover rules. An HSA is owned by you, and the money is yours permanently. An FSA is owned by your employer, and the money typically must be used within the plan year.

HSAs

• Owned by you
• Funds roll over indefinitely
• Move with you from job to job
• Require HDHP enrollment

FSAs

• Owned by your employer
• Unused funds often expire at year-end (unless your plan offers limited carryover)
• Do not require an HDHP

Both accounts help cover qualified expenses but HSAs offer more long-term flexibility.

Do HSA funds expire every year?

No. Any funds you, your employer or anyone else contributes to your HSA are legally yours and won’t ever expire. They roll over indefinitely without penalty. Because of this, many Americans choose to max out their HSAs each year, invest their funds and carry those funds all the way to retirement.

Can I pay my insurance premiums with my HSA funds?

Generally no, unless one of these exceptions applies:

• COBRA continuation coverage
• Medicare Parts A, B or D
• Qualified long-term care premiums (within IRS limits)
• Health insurance while receiving unemployment benefits

Because the rules are specific, reviewing details with your HSA provider is advisable.

Is an HSA worth it for a young healthy person?

Yes. Low expected medical spending allows contributions to grow untouched, building a tax-advantaged balance that can support future healthcare needs or long-term planning. Lower HDHP premiums can also create additional savings.

What are HSA withdrawal rules for non-medical expenses?

Withdrawals for non-qualified costs before age 65 trigger income tax plus a 20 percent penalty. After 65, distributions used for non-medical purposes are taxed as ordinary income but avoid the penalty.

Can I contribute to an HSA if my spouse has an FSA?

It depends on the type of FSA. A general-purpose FSA covering both partners blocks HSA eligibility. A limited-purpose FSA restricted to dental or vision usually keeps HSA contributions allowed.

What happens to my HSA if I change jobs?

Your balance stays with you because the account is individually owned. Funds continue rolling over, and you may keep using the money for qualified healthcare expenses regardless of employment changes.

Can an HSA help with retirement planning?

Yes. In fact, financial advisors often advise people to max out their HSA contributions each year (provided they have the ability and budget to do so) as a way of getting a head start on retirement savings.

Recent estimates show that an average couple that retires at the age of 65 in 2022 will need around $315,000 to pay for health-related expenses in retirement.

Since healthcare makes up such a large portion of your expected expenses in retirement, an HSA can act as a tax-advantaged buffer between your healthcare expenses and your other retirement funds, helping stretch your other savings.

Further, by investing your funds, HSAs can help you take advantage of the effects of compounding growth to accelerate your savings goals, provided you start saving both early and often.

In fact, due to the effects of compounding returns, saving $7,750 every year for 30 years would result in an account worth $670,000.

And when you reach retirement at the age of 65, you can withdraw these funds tax-free to pay for qualified healthcare expenses. You can also use the funds for any non-qualified expenses and pay income tax on the amount, but you will avoid the IRS penalty that would have applied before you reached age 65.