How Does an HSA Work? Health Saving Accounts, Explained
The Gist
An HSA is a tax-advantaged account designed to save and pay for qualified medical expenses while saving on taxes. It allows you to set aside funds that can be used to pay for near-term expenses or invested and saved for future expenses including in retirement.
An HSA can only be paired with high-deductible health plans (HDHPs).
HSAs can be funded with direct deposits or by manually adding money. The IRS-set annual limits for both individual and family plans.
HSAs can cover a variety of expenses, including those not typically covered by health plans, like dental and vision. They also offer tax advantages. However, non-qualified withdrawals will incur penalties.
What Is an HSA?
A health savings account (HSA) is a tax-advantaged account specifically for qualified health-related expenses. Put simply, it is a way for you to set aside funds for qualified medical expenses without paying taxes on those dollars. An HSA is an easy way to make your dollars go further and a great way to reserve funds in case you encounter large medical bills now or in the future.
No matter how inexpensive your health insurance is with Stride, it never hurts to save even more. That’s why a lot of our members consider opening a health savings account (HSA). HSAs can be paired only with certain high-deductible health plans (HDHPs). If you don’t have an HDHP, you can enroll in one for 2026. Just enter your zip code below and start comparing HDHPs and other plans now.
If you’re on the fence about whether you want a high-deductible health plan, and worry you won’t have enough money to cover the deductible, opening and contributing to an HSA can help.
How does an HSA work?
To add money to your HSA, you can set up direct deposit from another bank account, your paycheck, or another source of income. Or you can manually add money to your HSA whenever you like.
Insider tip
For an HSA to really work for you, you need to be sure to actually contribute funds to the account regularly. An HSA doesn’t provide you with any advantages if you don’t actually put money into it!
So, how does HSA work once you’ve added money to the account? You have the option to invest all or part of your HSA in securities such as mutual funds, stocks, or bonds. Any potential investment growth is federally tax-free, which means more money in your account. Moreover, all HSA contributions reduce your taxable income, which means you could owe less in taxes or may get a higher refund.
Remember that the money you add to your account rolls into the next year (unless you spend it). That makes it a great way to save for a medical emergency fund — or to pay for your medical expenses in retirement.
What Can I Use My HSA Funds For?
To avoid any penalties, use the funds in your HSA only for qualified medical expenses. Wondering what that means? It is just a fancy way of saying health-related expenses. This includes things like:
Doctor visits
Prescription drugs
Medical supplies (such as diabetic testing strips, crutches)
Long-term care costs (such as living in a nursing home)
Chiropractic services
Contact lenses
Lab tests
Family planning
Drug-addiction and stop-smoking programs
Dental treatments
Hearing aids
Psychiatric care
Sunscreen, aspirin, band aids, etc.
The entire list of qualified medical expenses is pretty extensive, and includes things that many health plans don’t cover, such as dental and vision. There’s no deadline to get money from your HSA for a qualified medical expense. You could reimburse yourself months—even years—after you originally paid for the qualified medical expense, as long as the expense was after you opened the HSA. Even better, starting at age 65, you can spend your HSA savings on anything you want— you’ll just have to pay income tax (if it’s not used for a qualified medical expense).
Insider tip
Prior to age 65, be careful about using your HSA funds for non-qualified expenses. If you do, you’ll end up paying income tax on the amount used and a 20% penalty for making a non-qualified withdrawal.
Can I Open an HSA With Any Health Plan?
In order to open an HSA, you must have a high-deductible health plan (HDHP). Remember that if you switch to a non-HDHP plan, you’ll have to stop contributing to your HSA, but you can still use the funds you already have in the account.
Can I Contribute As Much to My HSA As I Want?
Unfortunately, the IRS sets annual limits to how much you can save in your HSA.
$4,300 for an individual (in 2025) | $4,400 for an individual (in 2026)
$8,550 for a family (in 2025) | $8,750 for a family (in 2026)
If you're 55 or older during the tax year, you may be able to make a catch-up contribution, up to $1,000 per year. See IRS Publication 969 for more on annual HSA contribution limits.
Can I Use My HSA Funds on My Spouse and Kids?
You can spend your HSA funds on three groups of people.
1. Yourself and your spouse
2. Any dependents you claim on your tax return
3. Any person you could have claimed as a dependent on your tax return (with a few exceptions)
Even if your spouse and children aren’t actually covered by the insurance plan associated with your HSA, you can still use your HSA funds to cover any of their qualified medical expenses, as long as they are a dependent on your tax return.
Have More Questions About HSAs?
We hope that we have answered your question of “How does an HSA work,” and more. However, if you have additional questions, as always, Stride is here to help you understand your health insurance and savings options. If you still aren’t sure how a health savings account works, drop us a line at support@stridehealth.com. Or, if you’re ready to enroll in coverage, enter your zip code below for personalized plan recommendations.