Resonant Capital Advisors, LLC (“Resonant”) is a registered investment advisor. Information presented here is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies, nor should such information be construed as an opinion upon which any person may rely. The information provided here is of a general nature only and does not represent personal tax advice, either express or implied. Resonant and its advisors are not tax experts. Because tax laws and regulations change frequently, and their application can vary widely based on the specific facts and circumstances involved, you should consult with a qualified tax professional before implementing any strategy discussed herein.
What Is a Health Savings Account (HSA)?
Health Savings Accounts (HSA) are tax-advantaged personal savings accounts that can help individuals and families save and pay for out-of-pocket medical expenses now and in the future.
Who Is Eligible to Open an HSA?
To open and fund an HSA, you must be enrolled in a high-deductible health insurance plan. For 2026, a high-deductible plan is defined as having a minimum annual deductible of $1,700 for single coverage or $3,400 for family coverage and with out-of-pocket maximums of $8,500 for individuals and $17,000 for families (including deductible, copayments, and coinsurance but not premiums).
If your health plan qualifies you to utilize an HSA, individuals may contribute $4,400 per year. Those with family coverage are allowed to contribute $8,750. Individuals above the age of 55 may make an additional catch-up contribution of $1,000 per year.
Employers may also decide to contribute to a qualified employee’s account. The total combined employer and employee contributions to an HSA cannot exceed the annual limit set by the IRS.
What Are the Advantages of Opening an HSA?
HSAs are the only triple-tax-advantaged accounts available to individuals. This means that your dollars:
- are contributed pre-tax;
- grow tax-free, and;
- may be withdrawn tax-free (for qualified medical expenses).
This is a material combination of tax benefits for HSA contributors.
In addition, HSA balances can be invested, providing owners the potential to grow over time that portion of their asset base dedicated to paying for future health care expenses. Income and appreciation earned from investing in your HSA is also tax-free, a significant advantage.
Additional benefits of HSA accounts include portability (meaning you can take it with you even if you change jobs) and the ability to use HSA funds for the medical expenses of spouses and dependents.
How Are HSAs Different From Flexible Spending Accounts?
Beyond the advantages mentioned above, a key difference between HSAs and Flexible Spending Accounts (FSAs) is that HSA funds not used in a calendar year aren’t then foregone by the owner (as FSA balances are). In other words, HSAs have no “use it or lose it” designation, and so can accumulate for the benefit of the owner and their dependents over multiple years.
If I Am on Medicare, Can I Open an HSA?
Unfortunately, Medicare participants cannot open or contribute to an HSA. You can, however, use an already-funded HSA to cover out-of-pocket medical expenses during Medicare coverage.
Where Can I Use an HSA?
Common qualified medical expenses HSA funds include doctor’s office visits and copays, surgery, eye exams, dental treatment, flu shots, physical therapy, prescription drugs, and over-the-counter medicines. A full list of qualified medical expenses is outlined here.
Can I Use HSA Dollars For Non-Medical Expenses?
Importantly, you cannot. If you use HSA funds to pay for an ineligible (non-medical) expense, you must report it on your annual income tax return and pay related income taxes along with a 20% penalty.
At the age of 65, HSAs are effectively the same as an IRA or 401(k), in that owners can use the assets for non-medical expenses without incurring the 20% penalty. In this circumstance, withdrawals are subject to ordinary income taxes just like distributions from retirement accounts are.
What Happens To an HSA When the Owner Passes?
HSAs have specific rules regarding treatment of the account after the account owner’s death.
- Spousal Beneficiary: If the HSA is inherited by a spouse, the account typically becomes the spouse’s own HSA. The surviving spouse can continue to use the account with the same tax advantages.
- Non-Spouse Beneficiary: HSAs inherited by non-spouse beneficiaries, such as a child or other heir, no longer retain their HSA tax-advantaged status. Instead, the entire value of the account generally becomes taxable income to the beneficiary in the year of the account owner’s death.
- However, the beneficiary may be able to reduce the taxable amount by paying qualified medical expenses of the deceased that were incurred before death within a specified time. These rules can vary and have significant tax implications. Consulting with your estate planning attorney or CPA is recommended.
