HSA do's and don'ts

Health Savings Accounts (HSAs) offer big advantages:

  • Triple tax savings — your contributions, eligible withdrawals, and earnings are all tax-free!*
  • A convenient way to plan for health care expenses
  • A lot of flexibility

Make the most of these advantages — now and in the future — by following these helpful tips.


  • DO max out your annual contribution. The money in your HSA is always yours to keep — you’ll never forfeit your unused balance, even if you change medical plans, change jobs, or retire. Year after year, your HSA (and any money left in it) will carry forward, all while earning tax-free interest. So don’t limit your annual contribution to what you think you’ll need this year — think long-term and contribute as much as you can, up to IRS limits (in 2020, the limits on total contributions to an HSA are $3,550 if you have employee-only medical plan coverage or $7,100 if you cover dependents).
  • DO invest your money. Once your balance reaches the minimum amount required by your HSA administrator, you can invest the money for even greater tax-free growth potential! Think of your HSA as working in partnership with your 401(k) plan, helping you prepare for your health care expenses in retirement.
  • DO know what’s considered an eligible expense. Making an ineligible withdrawal will cost you (see the third bullet in the DON’TS list below), but you also want to maximize your tax savings by using your HSA for everything you possibly can. Review the list of eligible health care expenses on the IRS website — it includes obvious things like doctor’s office copays, hospital visit coinsurance, and prescription costs, along with items you may not realize are HSA-eligible, like bandages, pregnancy test kits, acupuncture, and many others. Test your knowledge of what’s eligible and what’s not with this fun online game.
  • DO pair your HSA with a Combination or Limited Purpose Health Care Flexible Spending Account (FSA), if one is offered through your company benefits program. (If you haven’t already enrolled in an FSA, you’ll need to wait until the next annual Open Enrollment.) Using one of these accounts in addition to your HSA will help you get the most tax savings each year. Both types of FSAs can be used for dental and vision expenses, while you use your HSA for medical expenses. With the Combination FSA, medical expenses become eligible, too, once you’ve met the minimum IRS-required deductible of $1,400 for employee-only medical plan coverage or $2,800 if you cover dependents. Keep in mind that FSAs are “use it or lose it” accounts — so estimate your costs for the year carefully before choosing a contribution amount.


  • DON’T worry if your HSA balance isn’t high enough to cover an expense. Unlike a Health Care FSA, your HSA contributions are only available to you once they’ve actually been deposited into your account. So your balance will grow throughout the year as deposits are made each pay period. If you have a big expense early in the year when your HSA balance isn’t high enough to cover it, don’t worry — you can reimburse yourself later on (see next bullet).
  • DON’T forget to reimburse yourself with money from your HSA. If you used cash, check, credit card, or another form of payment for eligible health care expenses, you can transfer funds from your HSA to reimburse yourself later on. You can even reimburse yourself for expenses from previous years (as long as you had an HSA at the time).
  • DON’T withdraw money for ineligible expenses. If you do, you’ll pay ordinary income tax plus a 20% penalty tax if you withdraw the money before age 65 (after age 65, you will pay ordinary income tax, but not the penalty).
  • DON’T feel locked into your HSA contribution amount. With an HSA, you have the flexibility to change your contribution amount throughout the year, as your circumstances change. So if you under-estimated your HSA contribution when you enrolled, you can increase it later on. You can also lower or stop your contributions, if necessary.

Remember, you own your HSA, so follow these tips to make the most of this highly valuable financial asset — you’ll be glad you did!

*HSA contributions are not subject to federal tax; however, they are currently subject to state tax in AL, CA, and NJ. Withdrawals are not subject to tax when used for eligible health care expenses. Consult with your tax advisor to understand the potential tax consequences when using an HSA.