LIVELY'S

Guide to Health Savings Accounts

Healthcare expenses are rising and planning for them isn't always easy. A Health Savings Account (HSA) helps you manage healthcare costs, lower your taxable income, and prepare financially for future medical needs.

In this guide, we'll walk you through exactly what an HSA is, who is eligible for one, and how these accounts work alongside your health insurance. You'll also find straightforward answers about contribution limits, eligible expenses, and important IRS rules—plus details on key changes coming in 2026 due to the federal One Big Beautiful Bill (OBBB).

Whether you're considering opening an HSA for the first time or you're looking to maximize the benefits of an existing account, this guide is designed to provide clear, practical answers to your most important questions.

What is an HSA?

A Health Savings Account (HSA) is a special savings account that lets you set aside pre-tax money specifically for medical expenses. It helps you lower your healthcare costs, save on taxes, and build financial security for the future.

An HSA offers a unique triple tax advantage, meaning:

• Your contributions are tax-deductible. Money you put into your HSA reduces your taxable income.

• Your savings grow tax-free. Any interest or investment earnings stay tax-free, helping your money grow faster.

• Withdrawals for medical expenses are tax-free. You pay no taxes when spending HSA funds on eligible healthcare costs, such as doctor visits, prescriptions, or dental care.

You always own your HSA—no matter if you switch jobs, health plans, or retire. Your HSA balance rolls over every year, meaning your funds never expire, and you won't lose unused money at the end of the year like you might with a Flexible Spending Account (FSA).

To open an HSA, you must have a specific type of health insurance called a High Deductible Health Plan (HDHP). HDHPs have lower monthly premiums but require you to pay a higher amount (deductible) before insurance coverage begins. Combining an HSA with an HDHP can be a smart financial strategy, helping you plan for medical expenses while saving money long-term.

Key benefits of an HSA

• Tax-free savings and growth: Contributions lower your taxes immediately, and your savings grow without taxes, helping you build a healthcare nest egg faster.

• Portability and no expiration: You fully own your HSA, and your funds roll over from year to year, even if you change jobs or retire. You never lose unused money.

• Use now or in retirement: HSAs offer flexibility—you can spend funds immediately on medical expenses or save them to cover healthcare costs later, especially during retirement when medical expenses often increase.

Is a healthcare savings account right for you?

These accounts appeal to a wide range of people. Some use them to help manage healthcare costs now, while others build savings for future medical needs. Because of the tax benefits and the option to invest unused funds, they can also support long-term financial planning—especially for expenses in retirement.

To decide if one fits your needs, it helps to understand how people typically use them, how they align with both short- and long-term goals, and the flexibility they offer for managing costs over time.

How people use their healthcare savings

People use these accounts in different ways depending on their needs. Some use them regularly for out-of-pocket costs like prescriptions or routine care. Others treat them as a savings tool, setting funds aside for future expenses. They’re also a good fit for those who want more control and flexibility in how they pay for healthcare.

Whether you're planning ahead or managing day-to-day expenses, this type of account can support a wide variety of goals.

Short vs. long term strategy

In the short term, these accounts work like a wallet for qualified medical costs, helping reduce your out-of-pocket burden. Over time, they can also serve as a savings and investment tool for future healthcare needs. Many people build up balances they can use later in life—especially in retirement—while still having the option to spend funds sooner if necessary.

Flexibility in usage

One of the biggest benefits is flexibility. Your balance rolls over from year to year, and the account stays with you if you change jobs or health plans. You can use the funds immediately, save them for later, or even reimburse yourself for past medical expenses as long as you keep the receipts.

What’s the difference between an HSA and an FSA?

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) both offer tax advantages to help cover medical expenses, but they differ in several key areas.

Key differences in eligibility, ownership, and rollover

Eligibility: HSAs require enrollment in an HDHP. FSAs can be used with most types of insurance plans.

Ownership: HSAs belong to you, no matter where you work. FSAs are owned by your employer and may not carry over.

Rollover: HSAs roll over indefinitely. FSAs often have use-it-or-lose-it policies, though some employers allow small rollovers or grace periods.

What are the HSA eligibility requirements for 2025?

To contribute to a Health Savings Account (HSA) in 2025, you must meet specific requirements set by the IRS. These rules help ensure the tax advantages are used for their intended purpose—supporting people with qualifying high-deductible health plans.

Here's what you need for HSA eligibility:

• Be enrolled in a High-Deductible Health Plan (HDHP) Your health insurance must meet IRS minimum deductible and out-of-pocket maximum limits. For 2025, these thresholds are updated annually and typically mean a higher deductible than traditional plans. Most HSA-eligible plans are labeled as such, but it's worth double-checking with your insurer or HR team.

• Not be enrolled in Medicare Part A or Part B Even if you have HDHP coverage through your employer, enrolling in any part of Medicare makes you ineligible to contribute to an HSA. This often becomes relevant around age 65 or if you’ve started collecting Social Security (which can auto-enroll you in Part A).

• Not be covered by a General Purpose Flexible Spending Account (FSA) You can’t contribute to an HSA if you—or your spouse—have access to a traditional FSA that covers general medical expenses. However, Limited Purpose FSAs (which only cover dental and vision) are allowed.

• Have no other disqualifying health coverage This includes secondary insurance, employer assistance programs, or certain types of supplemental plans that begin paying benefits before you meet your HDHP deductible.

• Not be claimed as a dependent on someone else’s tax return If you're listed as a dependent (even if you’re over 18 and working), you're not eligible to contribute to your own HSA.

What’s changing in 2026 under the One Big Beautiful Bill (OBBB)?

Starting January 1, 2026, new federal rules passed under the One Big Beautiful Bill (OBBB) will expand HSA eligibility to more Americans. These updates aim to modernize how people access and save for healthcare. Key changes include:

• New qualifying health plans: Individuals enrolled in Bronze or Catastrophic-tier Affordable Care Act (ACA) plans will be eligible to contribute to an HSA. These plans typically have lower monthly premiums and higher deductibles—similar to traditional HDHPs.

• Expanded care options: Telehealth services and Direct Primary Care (DPC) will be permanently recognized as qualified HSA expenses—even if used before reaching the deductible.

These changes represent one of the most significant expansions of HSA access in nearly 20 years. Lively will continue to update this guide as additional details and clarifications are released by federal agencies.

To qualify for an HSA in 2025, you must have a high-deductible health plan and no disqualifying coverage like Medicare or a general-purpose FSA. Starting in 2026, new rules under the One Big Beautiful Bill will expand eligibility to more people, including some with ACA Bronze and Catastrophic plans, and possibly limited Medicare coverage. To learn more about the upcoming changes, view our HSA OBBB guide.

What is a High Deductible Health Plan (HDHP)?

A High Deductible Health Plan (HDHP) is a type of health insurance that has a higher deductible—the amount you pay out of pocket before your insurance starts to cover costs—but typically offers lower monthly premiums. This structure is designed to give individuals and families more control over their healthcare spending and is the only type of health plan that makes you eligible to contribute to a Health Savings Account (HSA).

To qualify as an HDHP, a plan must meet minimum deductible and maximum out-of-pocket thresholds set each year by the IRS. These limits are adjusted annually to account for inflation and healthcare cost trends.

HDHPs are often chosen by individuals and employers who want to save on premium costs and use an HSA to prepare for both routine and unexpected medical expenses.

What are the HDHP limits for 2025 and 2026?

The IRS sets the required thresholds for High-Deductible Health Plans (HDHPs) each year. To qualify for HSA contributions, your health plan must meet or exceed these limits:

These limits apply only to in-network covered services. Plans that don't meet these thresholds are not considered HDHPs and are not HSA-eligible.

Understanding HDHP Eligibility and Coverage Requirements

To contribute to an HSA, your health plan must meet the IRS’s definition of a High-Deductible Health Plan (HDHP). For 2025 and 2026, this means:

• 2025: Minimum deductible of $1,650 for individuals and $3,300 for families; maximum out-of-pocket limits of $8,300 (individual) and $16,600 (family).

• 2026: Minimum deductible of $1,700 for individuals and $3,400 for families; maximum out-of-pocket limits of $8,500 (individual) and $17,000 (family).

These limits apply to in-network covered services only. Plans that don’t meet these thresholds are not considered HSA-eligible.

Even with a high deductible, HDHPs must cover preventive care—such as annual checkups, cancer screenings, and immunizations—at no cost to you. Some plans also offer telehealth coverage before you meet your deductible, a benefit expected to continue under updated HSA rules starting in 2026.

Do HDHPs cover any care before the deductible?

Yes. Even though HDHPs require you to pay out of pocket for most services until your deductible is met, they are required by law to cover certain preventive services at no cost to you. This includes:

• Annual physicals and wellness visits

• Screenings for cancer, diabetes, and blood pressure

• Immunizations

• Preventive services for children and women (e.g., prenatal care, contraception)

Starting in 2026, HDHPs can cover telehealth services before the deductible without affecting HSA eligibility. Whether your plan includes this benefit will depend on how your insurer designs the plan.

How much can you contribute to an HSA each year?

The IRS sets annual limits on how much money you can contribute to a Health Savings Account (HSA). These limits help you plan how much you can save each year—whether you're contributing on your own, through your employer, or both.

The amount you're allowed to contribute depends on two things:

• Whether you have self-only or family coverage under a qualified High Deductible Health Plan (HDHP)

• Whether you're age 55 or older, which qualifies you for a special extra contribution

Let’s break it down clearly.

Contribution limits for 2025 and 2026

Here are the official IRS contribution limits for HSAs for the next two years. These limits include any amount contributed by you or your employer:

These amounts are adjusted each year for inflation. If you’re eligible for only part of the year, you may need to prorate your contribution or see the “last-month rule” below.

What’s the difference between an individual and family HSA?

The IRS defines Health Savings Account (HSA) contribution limits based on whether your High-Deductible Health Plan (HDHP) provides self-only or family coverage. This affects how much you can contribute and how you use your account.

An individual HSA applies if your HDHP covers only you. In 2026, the contribution limit for individual coverage is $4,400.

A family HSA applies if your HDHP covers at least one other person, such as a spouse or child. The 2026 contribution limit for family coverage is $8,750.

Which one applies to you?

Your contribution type depends on your HDHP coverage, not your tax filing status. For example, if your plan only covers you, you fall under individual coverage. If your plan covers you and any dependents, it counts as family coverage. Always confirm with your benefits administrator or insurer.

What is the HSA catch-up contribution for people 55 and older?

If you are 55 years old or older, you’re allowed to contribute an extra $1,000 per year to your HSA. This is called a catch-up contribution, and it’s designed to help people save more as they approach retirement.

• This extra $1,000 is in addition to the normal yearly limit.

• The catch-up contribution applies whether you have self-only or family coverage.

• If you’re married and both you and your spouse are over 55, each person must have their own HSA to make their own catch-up contributions.

Example: If you're 55+ and have family coverage in 2026:

• Standard limit = $8,750

• Catch-up = $1,000

• Total allowed = $9,750

This catch-up amount has stayed the same for several years and applies to both 2025 and 2026.

How does the last-month rule work?

Normally, your contribution limit is based on how many months you’re eligible for an HSA during the year. But the last-month rule gives you an option to contribute the full annual limit—even if you were only eligible for part of the year.

Here’s how it works:

• If you are HSA-eligible on December 1, you can contribute the full year’s amount.

• You must stay eligible through December 31 of the following year (a 12-month “testing period”).

• If you lose eligibility during the testing period, you’ll have to pay income tax and a penalty on the extra contributions.

When this helps:

If you switch to an HSA-eligible plan late in the year (like in October or November), the last-month rule lets you still make a full contribution and get the tax advantages—as long as you stay eligible the next year.

How Do HSA Contributions Work?

There are multiple ways to add money to your HSA, depending on your employment status and how your account is set up:

• Payroll deduction: If your employer offers payroll contributions, you can set aside pre-tax dollars from each paycheck. This is one of the most tax-advantaged ways to fund your HSA and reduces your taxable income.

• Bank transfers: You can link your HSA to your personal checking or savings account and transfer after-tax dollars at any time. These contributions may be tax-deductible when you file your return.

• Employer contributions: Many employers offer HSA contributions as part of their benefits package. These funds do not count toward your gross income and count toward your annual contribution limit.

• IRA transfers: A one-time transfer from a traditional IRA to your HSA is allowed, known as a Qualified HSA Funding Distribution. This doesn’t count as income, but it does count toward your annual contribution limit.

No matter how you contribute, all deposits combined—your own and your employer’s—must stay within the IRS’s annual limits.

What happens if you contribute too much to your HSA?

Contributing more than the IRS annual limit results in an excess contribution. This amount is considered taxable income and may also be subject to a 6 percent excise tax each year it remains in your account.

To correct this, withdraw the excess amount and any related earnings before the tax filing deadline, typically April 15 of the following year. Earnings are subject to income tax.

If you don't remove the excess on time, the amount will roll into the next year but still be penalized until corrected.

What’s the difference between an HSA rollover and a transfer?

There are two ways to move your HSA from one provider to another: rollover and transfer.

A rollover involves withdrawing funds from your current HSA and depositing them into a new one within 60 days. You're allowed one rollover every 12 months. You are responsible for completing it correctly and on time.

A transfer is a direct custodian-to-custodian move between providers. There is no limit on how often you can do this, and it avoids potential tax issues. Transfers are usually safer and more straightforward.

Contribution Highlights for 2025 and 2026

For 2026, the HSA contribution limit is $4,400 if you have self-only coverage, or $8,750 for family coverage. If you're 55 or older, you can contribute an additional $1,000. The last-month rule may allow you to contribute the full annual amount even if you become eligible later in the year, as long as you remain eligible through the following year. Understanding these rules can help you take full advantage of your HSA’s tax benefits. Want to make sure you're handling HSA contributions correctly at tax time? See our HSA Tax Guide for step-by-step info on deductions, reporting, and avoiding common mistakes.

How do you use your health savings account?

Once your health savings account is funded, you have flexible options for how and when to use the money. Whether you're paying for a prescription today or saving for a future procedure, your account gives you control over how to manage healthcare costs.

You can use your funds immediately by swiping a debit card at checkout or choose to pay out of pocket and reimburse yourself later. Because there's no expiration or deadline for using your balance, you can treat your account as either a short-term tool or a long-term savings vehicle.

Before you start spending, it's important to understand which expenses qualify, how reimbursement works, and how to keep good records for tax purposes.

How Do You Access HSA Funds?

When it’s time to spend HSA dollars on qualified medical expenses, you have several convenient options:

• Debit card: Most HSA providers issue a debit card you can use at the point of purchase, like at a pharmacy or doctor’s office. This is the simplest way to spend HSA funds directly.

• Reimbursement: If you paid out of pocket using another method (like a credit card), you can log in to your HSA account and request a reimbursement. Funds are then transferred to your bank account.

• Receipt/documentation tips: Always save your receipts and proof of service. The IRS doesn’t require you to submit them when you withdraw funds, but you may need them if you’re audited. Many HSA providers (including Lively) allow you to upload and store receipts for safe keeping.

What Are the Rules for Reimbursing Yourself From an HSA?

One of the most powerful features of an HSA is the ability to reimburse yourself at any time—even years later—as long as:

• The medical expense was qualified and incurred after your HSA was opened

• You weren’t reimbursed for it by insurance or another account (like an FSA)

• You saved proper documentation, such as a receipt and explanation of benefits

There is no time limit on when you must request reimbursement. This means you can pay out of pocket now and choose to reimburse yourself later—even in retirement—allowing your HSA funds to stay invested and grow tax-free in the meantime.

This flexibility allows you to treat your HSA like both a short-term healthcare tool and a long-term savings strategy.

Making the Most of Your HSA Contributions and Spending

You can fund your HSA in several ways—including through payroll deductions, personal bank transfers, employer contributions, or even a one-time IRA transfer. All contributions, regardless of the source, count toward your annual IRS limit. When it comes time to spend, you can use an HSA debit card or request a reimbursement for qualified medical expenses. Just make sure to save your receipts. One of the biggest advantages of an HSA is that there’s no deadline for reimbursing yourself—as long as the expense was eligible and occurred after your account was opened. This flexibility lets you decide whether to use your HSA now or save and invest those funds for the future.

What expenses are eligible under an HSA?

Health Savings Accounts (HSAs) allow you to pay for many healthcare-related expenses tax-free, as long as those expenses are considered qualified medical expenses by the IRS. These are services or items that are primarily used to diagnose, treat, or prevent a physical or mental health condition.

Common HSA‑eligible expenses

You can use HSA funds to pay for a broad range of medical, dental, vision, and over-the-counter items, including:

• Doctor visits Includes co-pays, consultations, urgent care, specialist appointments, physical therapy, and mental health services like therapy or counseling.

• Prescription medications Covers drugs prescribed by a doctor, including insulin. Some over-the-counter medications—like allergy relief, cold medicine, and pain relievers—also qualify when used for medical purposes. No prescription is needed after the CARES Act of 2020 for most OTC drugs.

• Dental care Includes routine cleanings, X-rays, fillings, root canals, crowns, dentures, and orthodontics (like braces). Cosmetic procedures, like teeth whitening, are not eligible.

• Vision care Covers eye exams, glasses, prescription sunglasses, contact lenses and solution, and LASIK or other corrective surgeries.

• Over-the-counter (OTC) items Includes sunscreen (SPF 15+), menstrual care products, first-aid kits, bandages, thermometers, blood pressure monitors, and more.

• Medical equipment and supplies Eligible items include hearing aids, crutches, CPAP machines, diabetes supplies (like test strips and monitors), and mobility aids.

• Preventive services Routine care like annual physicals, vaccines, cancer screenings, and prenatal checkups are 100% covered by HDHPs and also qualify for HSA use if you pay out-of-pocket.

Not sure if your expense qualifies? View our full list of eligible HSA expenses for details.

Important: To qualify for tax-free reimbursement:

• The expense must have occurred after your HSA was opened

• It must not have been reimbursed by insurance or another benefit

• You should save receipts and records in case the IRS requests proof

Lively makes this easier with built-in tools to upload and store your receipts directly within your HSA account dashboard.

What happens if you spend HSA money on a non‑qualified expense?

If you use HSA funds for an expense that doesn’t qualify under IRS rules, the consequences vary depending on your age:

If you’re under age 65:

• The amount spent becomes taxable income

• You’ll owe an additional 20% penalty on top of income tax

If you’re 65 or older:

• The 20% penalty no longer applies

• You still owe ordinary income tax on any amount used for non-medical expenses

• But you can continue to use HSA funds tax-free for qualified healthcare costs

Can I use my HSA for someone else’s medical expenses?

Yes, in some situations. You can use your HSA to pay for qualified medical expenses for specific individuals, even if they are not covered under your health plan.

You can use your HSA tax-free for your spouse, your tax dependents (including children and certain relatives), and adult children under 26 if they are still your tax dependents. If you can legally claim someone as a dependent on your tax return, their expenses are eligible.

You cannot use your HSA for domestic partners (unless they are a legal tax dependent), friends, coworkers, or others who are not dependents.

Key Takeaways on Using HSA Funds the Right Way

Your HSA can be used tax-free for a wide range of qualified medical expenses, including doctor visits, prescriptions, dental and vision care, and more. If you use your funds for something that doesn't qualify, you may owe taxes—and a penalty if you're under age 65. As long as you save your receipts and the expense occurred after your account was opened, you can reimburse yourself later, even years down the road. This flexibility makes the HSA one of the most versatile savings tools for both short-term and long-term healthcare needs.

Can You Invest Your HSA Funds?

Yes—if your HSA provider offers it, you can invest your Health Savings Account (HSA) funds similarly to how you would with a retirement account. Investing your HSA dollars allows you to grow your savings tax-free over time, making your account even more valuable for future medical or retirement expenses.

This section explains how HSA investing works, the types of options available, and when it might make sense for you.

What Investment Options Do HSA Providers Offer?

Not all HSA providers offer the same investment experience, so it's important to understand what's available when choosing a provider. Broadly, HSA investment options fall into three categories:

• Traditional savings only: Some HSAs act like a basic savings account, earning low interest and offering no investment features.

• Self-directed investments: These accounts allow you to choose from a wide range of investment vehicles, such as mutual funds, ETFs (exchange-traded funds), stocks, or bonds—similar to a brokerage account. You manage your own portfolio.

• Guided or robo portfolios: Some providers offer pre-built investment portfolios tailored to your risk tolerance and time horizon. These are often ideal for users who want to invest without managing individual funds.

Some HSA providers, like Lively, offer first-dollar investing, meaning you can start investing immediately without needing to keep a large cash balance. Others may require a minimum balance (e.g., $1,000–$2,000) before investments are enabled.

What Happens to Your HSA in Special Situations?

While most of this guide covers how to open, contribute to, and use your HSA, there are a few special scenarios that can impact how your account works over time. Whether you’re switching providers, aging into Medicare, losing eligibility mid-year, or planning ahead for estate purposes, it’s important to understand what happens to your HSA in these situations.

The sections below explain how to manage your HSA when life changes—so you can avoid penalties, make smart decisions, and continue getting the most out of your account.

What happens to your HSA after age 65?

After you turn 65, your HSA can still be used for qualified medical expenses tax-free. Additionally, you can withdraw funds for any purpose without facing the 20 percent penalty. However, if the withdrawal is not for a qualified medical expense, you will pay income tax on the amount.

You can also use your HSA to pay for certain Medicare premiums (except Medigap). Once you enroll in Medicare, you can no longer contribute to your HSA, but you can continue using the funds already in your account.

What happens to your HSA if you become ineligible mid-year?

If you lose HSA eligibility during the year—for example, by enrolling in Medicare or switching to a non-HDHP plan—you must stop contributing to your HSA. However, you can continue to use your existing HSA balance tax-free for qualified medical expenses.

You may need to prorate your contribution based on how many months you were eligible. If you used the last-month rule to contribute the full annual amount, you must remain eligible through the next year to avoid penalties.

What happens to your HSA when you die?

If you name your spouse as your HSA beneficiary, the account transfers to them and retains its tax advantages.

If someone other than your spouse inherits the account, the HSA is closed, and the funds are considered taxable income to that person.

If no beneficiary is named, the account becomes part of your estate and may be subject to taxes.

How do you open an HSA with Lively?

If you're eligible, opening a Health Savings Account with Lively is quick and simple. First, confirm you are enrolled in an HSA-eligible High-Deductible Health Plan. Next, choose whether to open an individual or employer-sponsored account.

You can apply online in minutes. Once your account is open, you can start making contributions via payroll deduction, bank transfer, or other approved methods. Lively provides tools to help you track spending, manage receipts, and grow your savings through investments if available. Need help getting started? Contact our team for personalized support.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.