How to Use an HSA: Contributions, Spending, and Age 65

A Health Savings Account works in three moves: you put pretax money in, you spend it on qualified medical costs, and anything you don’t spend stays invested and grows tax-free for later. Knowing how to use an HSA well means understanding all three, plus the paperwork that keeps the IRS satisfied. For 2026, you can contribute up to $4,400 with self-only coverage or $8,750 with family coverage, add $1,000 more if you’re 55 or older, and carry every unspent dollar forward indefinitely.¹ The account is yours permanently. It doesn’t expire, and it isn’t tied to your employer.

Confirm You’re Eligible Before You Contribute

Eligibility is checked month by month. To contribute for any given month, on the first day of that month you must be covered by a High Deductible Health Plan and meet three other conditions: no other disqualifying health coverage, no Medicare enrollment, and no one else entitled to claim you as a dependent.² Limited-purpose dental and vision plans don’t disqualify you. Signing up for any part of Medicare does — you keep the account and can still spend from it, but new contributions stop.

Starting January 1, 2026, bronze-level and catastrophic plans bought through Healthcare.gov are treated as HDHPs for HSA purposes, even when they don’t hit the standard deductible thresholds. That change came out of the One Big Beautiful Bill Act and opened HSA eligibility to a large group of marketplace enrollees who used to be shut out.³ Your plan’s Summary of Benefits and Coverage will confirm whether it qualifies.

Putting Money Into the Account

There are two ways to fund an HSA, and one is meaningfully better than the other.

Payroll deduction routes your chosen amount from each paycheck into the HSA before any tax is calculated. Those dollars skip federal income tax and FICA (Social Security and Medicare tax), which saves you an extra 7.65% compared to funding the account yourself. Your employer’s HR or benefits portal is where you set the per-paycheck amount, and any employer contribution shows up on your W-2 in Box 12 with Code W.⁴

Direct contributions work when you don’t have a workplace HSA, or when you want to add more than payroll allows. You transfer money from a linked bank account through your custodian’s website, either as a one-off or on a recurring schedule, and claim the deduction on your tax return. You still get the income tax break, but the FICA savings are gone.

The 2026 limits — $4,400 self-only, $8,750 family, plus $1,000 catch-up at 55 — are combined caps. They include your contributions, your employer’s, and anything anyone else puts in.¹ You have until the tax filing deadline (typically April 15) to make contributions for the prior year.

If You Only Qualified Part of the Year

Ordinarily, a mid-year start means a prorated contribution limit. The last-month rule offers a shortcut: if you’re HSA-eligible on December 1, you can contribute the full annual limit for that year.² The condition is a testing period running through December 31 of the following year. Drop your HDHP coverage inside that window and the amount you contributed above the prorated limit becomes taxable income plus a 10% penalty.

If You Put In Too Much

Excess contributions face a 6% excise tax for every year they sit in the account. Pull the excess out (along with any earnings it generated) before your tax filing deadline including extensions, and the 6% goes away. The earnings you withdraw count as taxable income for that year.

Paying for Medical Care From the HSA

Most custodians issue a debit card tied to your cash balance. Swipe it at the pharmacy counter, the doctor’s office, or the hospital, and the funds come out of the HSA directly. For a bill that arrives in the mail, log into the custodian’s portal, enter the provider’s name and billing address along with the invoice number, and the custodian sends a check or ACH payment on your behalf.

Some custodians will auto-categorize charges by merchant type, but don’t lean on that. The IRS holds you — not the custodian — responsible for proving each withdrawal was for a qualified expense.

What Counts as a Qualified Medical Expense

The statute defines qualified medical expenses broadly: anything paid for the diagnosis, treatment, or prevention of disease, or to affect any structure or function of the body.⁵ In practice: doctor visits, hospital stays, lab work, prescriptions, dental care, vision exams, glasses, contacts, and medical equipment like crutches or glucose monitors. Over-the-counter medications and menstrual products qualify without a prescription, permanent under the CARES Act.⁶ Cosmetic procedures, teeth whitening, and gym memberships generally don’t. IRS Publication 502 has the detailed list.⁷

Insurance Premiums: Four Exceptions

HSA funds generally can’t pay health insurance premiums. Four situations get an exception:²

COBRA continuation premiums after a job loss or hour reduction.
Health coverage premiums while you’re receiving unemployment compensation.
Long-term care insurance premiums, up to age-based annual limits.
Medicare Part A, Part B, Part D, and Medicare Advantage premiums once you turn 65. Medigap (supplemental) premiums are not eligible.

Non-Qualified Withdrawals

Pull money out for anything else — a vacation, a car repair, rent — and you owe income tax on the amount plus a 20% additional tax.² The 20% goes away at 65 or if you become disabled, but the income tax stays.

Paying Out of Pocket and Reimbursing Yourself Later

You don’t have to run medical costs through the HSA in real time. Pay the bill with a credit card or from checking, keep the receipt, and reimburse yourself from the HSA whenever you want. There is no deadline. A bill paid today can be reimbursed five, ten, or twenty years from now, as long as the expense was incurred after you opened the account and you can prove it qualified.²

To request a reimbursement, log into the custodian’s website or app, choose the reimbursement option, enter the amount, and pick the linked bank account. Funds typically arrive in three to five business days.

This mechanic is what turns an HSA into a long-term savings vehicle. If you can cover routine medical costs from ordinary cash flow and leave the HSA balance invested, the account compounds tax-free. Reimbursements taken years later are still tax-free, provided the underlying expenses qualified when they were incurred and you kept documentation.

Fixing a Mistaken Withdrawal

Accidentally swipe the HSA card for a non-medical purchase, or take out the wrong amount, and you can put the money back. The IRS treats these as mistaken distributions. You have until the due date of your tax return (without extensions) for the first year you knew or should have known about the mistake.⁸ When you return the funds, the custodian corrects its reporting so the distribution doesn’t appear on your 1099-SA, and the repayment doesn’t count against your annual contribution limit. Call the custodian to start the process — most require a written statement that the withdrawal was made due to a mistake of fact.

Investing the Balance

Once your cash balance clears a threshold set by the custodian (often somewhere around $1,000 to $2,000), you can move money into mutual funds, index funds, and sometimes individual stocks or bonds through the custodian’s investment platform. Gains grow tax-free, and qualified medical withdrawals stay tax-free no matter how large the account has become.

The tradeoff is liquidity. Selling investments and moving proceeds back to cash takes a few business days, so keep enough in the cash side to cover expected near-term medical costs. Otherwise you may be forced to sell at a bad moment to pay a bill.

Records and Tax Filing

You don’t submit receipts when you take a distribution, but an audit puts the burden on you to show each withdrawal matched a qualified expense. Save itemized receipts showing date of service, what was provided, and what you paid. Explanation of Benefits statements from your insurer make good backup.²

This matters even more if you’re using the reimburse-later strategy. Pay a $3,000 bill in 2026 and reimburse yourself in 2034, and you still need the 2026 receipt. Thermal paper fades within a few years — scan everything and keep a cloud folder organized by year.

At tax time, HSA activity goes on Form 8889, attached to your 1040. The form reports contributions, the deduction you’re claiming, and any distributions. If you took distributions during the year, you must file Form 8889 even if you’d otherwise have no reason to file a return.⁹ Spouses with separate HSAs each file their own Form 8889.

What Changes at 65

Two things shift when you turn 65. If you enroll in Medicare (as most people do), you can no longer contribute to the HSA; if your birthday falls mid-year, the contribution limit is prorated for the months before Medicare kicked in. And the 20% penalty on non-medical withdrawals goes away. You’ll still pay regular income tax on a non-medical withdrawal, but at that point the account behaves much like a traditional IRA for non-medical use, and remains fully tax-free for medical use.²

Turning 65 is also when Medicare premiums become eligible expenses. Parts A, B, and D and Medicare Advantage premiums all qualify. Medigap does not.

Beneficiaries and Prohibited Transactions

Two boundaries are worth naming so you don’t stumble into them. Name your spouse as beneficiary if you can — a spouse inherits the HSA as their own HSA, tax-free. Any other beneficiary receives the full account value as taxable income in the year of death, reduced only by any of the deceased’s qualified medical expenses they pay within one year.²

And don’t try to use the HSA for anything other than holding funds and paying for care through the custodian. Using it as loan collateral, lending from it, or buying property for personal use with HSA money is a prohibited transaction, and the penalty is the entire balance being treated as a taxable distribution — plus the 20% penalty if you’re under 65.¹⁰ It’s the single most expensive mistake available with this account, and avoiding it takes nothing more than using the HSA the way it’s designed to be used.

1
Internal Revenue Service. Revenue Procedure 2025-19
2
Internal Revenue Service. Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans
3
Internal Revenue Service. IRS Notice 2026-5 – Expanded Availability of Health Savings Accounts Under the OBBBA
4
Internal Revenue Service. HSA Contributions – IRS Courseware
5
Office of the Law Revision Counsel. 26 USC 213 – Medical, Dental, Etc., Expenses
6
Internal Revenue Service. IRS Outlines Changes to Health Care Spending Available Under CARES Act
7
Internal Revenue Service. Publication 502, Medical and Dental Expenses
8
Internal Revenue Service. Instructions for Forms 1099-SA and 5498-SA
9
Internal Revenue Service. 2025 Instructions for Form 8889
10
Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts