Health Savings Accounts (HSAs)
Health Savings Accounts offer unique triple tax advantages that make them one of the most powerful savings vehicles available. To use an HSA, you must be enrolled in a qualifying High-Deductible Health Plan (HDHP).
HSA Overview
Triple Tax Advantage
| Tax Benefit | Description |
|---|
| 1. Contributions | Tax-deductible (or pre-tax) |
| 2. Growth | Tax-free (interest, dividends, gains) |
| 3. Withdrawals | Tax-free for qualified medical expenses |
HSA Eligibility Requirements
| Requirement | Details |
|---|
| HDHP coverage | Must be enrolled in qualifying HDHP |
| No other coverage | No disqualifying coverage |
| Not Medicare enrolled | Cannot contribute once on Medicare |
| Not a dependent | Cannot be claimed on another's return |
Key Point: HSAs offer the only "triple tax benefit" in the tax code—contributions are deductible, growth is tax-free, AND withdrawals for qualified expenses are tax-free.
2025 HSA Limits
Contribution Limits
| Coverage Type | 2025 Limit |
|---|
| Self-only | $4,300 |
| Family | $8,550 |
| Catch-up (55+) | Additional $1,000 |
Total Limits with Catch-Up
| Coverage | Under 55 | 55 or Older |
|---|
| Self-only | $4,300 | $5,300 |
| Family | $8,550 | $9,550 |
HDHP Requirements (2025)
| Requirement | Self-Only | Family |
|---|
| Minimum deductible | $1,650 | $3,300 |
| Maximum OOP | $8,300 | $16,600 |
HSA Contributions
Contribution Sources
| Source | Tax Treatment |
|---|
| Employee payroll deduction | Pre-tax (excludes income and FICA) |
| Direct contribution | Tax-deductible on Form 1040 |
| Employer contribution | Excluded from employee income |
| Rollover from another HSA | Not taxable |
Contribution Timing
| Rule | Details |
|---|
| Deadline | April 15 of following year |
| Pro-rata rule | Monthly contribution based on HDHP coverage |
| Last-month rule | Full contribution if HDHP on Dec 1 |
| Testing period | Must maintain HDHP 12 months after last-month rule |
Excess Contribution Penalty
| Situation | Penalty |
|---|
| Contribution over limit | 6% excise tax on excess |
| Removed before deadline | No penalty if removed with earnings |
| Carried forward | Counts against future year limits |
Exam Tip: The last-month rule allows someone who becomes HDHP-eligible in December to make the full annual HSA contribution, but they must remain HDHP-eligible for the following 12 months or face taxes and penalties.
HSA Distributions
Qualified Medical Expenses
| Qualified | Not Qualified |
|---|
| Medical/dental/vision care | Cosmetic procedures |
| Prescription drugs | Gym memberships |
| OTC medications | General wellness |
| Medical equipment | Insurance premiums (with exceptions) |
| COBRA premiums | |
| Medicare premiums (Parts A, B, D, MA) | |
| Long-term care premiums (up to limits) | |
Tax Treatment of Distributions
| Distribution Type | Under 65 | 65 or Older |
|---|
| Qualified medical expense | Tax-free | Tax-free |
| Non-qualified expense | Income tax + 20% penalty | Income tax only |
Penalty Exceptions (Under 65)
| Exception | Penalty Waived |
|---|
| Death | Yes |
| Disability | Yes |
| Age 65+ | Yes |
| Medicare premiums | N/A (qualified expense) |
HSA After Age 65
Changes at Medicare Eligibility
| Rule | Details |
|---|
| Contributions | Cannot contribute once enrolled in any Medicare |
| Existing funds | Can still use tax-free for qualified expenses |
| Non-qualified use | Taxed as income, no 20% penalty |
| Rollover | Funds never expire |
Medicare and HSA Contributions
| Situation | Can Contribute? |
|---|
| Age 65, not on Medicare | Yes (if HDHP enrolled) |
| Age 65, Medicare Part A only | No |
| Age 65, Medicare Part B | No |
| Social Security at 65 | No (auto-enrolled in Part A) |
Key Point: Many people are surprised that claiming Social Security at 65 automatically enrolls them in Medicare Part A, which disqualifies them from contributing to an HSA. Planning is essential.
HSA vs. Other Accounts
Comparison Table
| Feature | HSA | Health FSA | HRA |
|---|
| Ownership | Employee | Employer | Employer |
| Portability | Yes | No | Usually no |
| Rollover | Unlimited | $660 (2025) or grace period | Employer decides |
| HDHP required | Yes | No | No |
| Investment option | Yes | No | No |
| Use after termination | Yes | Limited | Usually no |
Combining HSA and FSA
| FSA Type | HSA Compatible? |
|---|
| General purpose health FSA | No |
| Limited purpose FSA (dental/vision) | Yes |
| Dependent care FSA | Yes |
| Post-deductible FSA | Yes |