How to Contribute to Your Health Savings Account

A Health Savings Account (HSA) is a personal savings account offering tax advantages for qualified healthcare costs. This guide details HSA eligibility, account setup, contribution methods, and tax benefits.

Understanding HSA Eligibility and Limits

To contribute to an HSA, an individual must be covered by a High Deductible Health Plan (HDHP). For 2025, an HDHP must have a minimum annual deductible of $1,650 for self-only coverage or $3,300 for family coverage. The plan’s maximum annual out-of-pocket expenses, including deductibles, co-payments, and coinsurance (excluding premiums), cannot exceed $8,300 for self-only coverage or $16,600 for family coverage.

Other conditions determine HSA eligibility. An individual cannot be covered by any other non-HDHP health insurance, with limited exceptions for supplemental coverage like dental or vision. The individual must not be enrolled in Medicare or claimed as a dependent. Each eligible spouse must open a separate HSA, as joint HSAs are not permitted.

Annual contribution limits apply. For 2025, individuals with self-only HDHP coverage can contribute up to $4,300. Those with family HDHP coverage can contribute up to $8,550. These limits apply to total contributions from both the individual and any employer.

An additional $1,000 “catch-up” contribution is permitted annually for individuals aged 55 and older. If both spouses are 55 or older and eligible, each can make this additional contribution to their respective HSAs.

Setting Up Your HSA Account

Establishing an HSA is necessary before making contributions. Various financial institutions offer HSAs, including banks, credit unions, and investment firms. The provider choice can impact your experience and fund growth.

When selecting an HSA provider, evaluate factors like fee structure (monthly maintenance, investment, or transaction charges). Investment options are important if you plan to invest for long-term growth. Ease of account access and responsive customer service are practical considerations.

Opening an HSA involves completing an application from your chosen financial institution. This requires personal information, such as your Social Security number and contact details. You will also need to provide HDHP information to confirm eligibility.

Finally, link a bank account to your HSA for funding. This facilitates money transfers into your account. Some providers may issue a debit card for using HSA funds for qualified medical expenses, offering direct access to your balance.

Making Contributions to Your HSA

After confirming eligibility and opening an HSA, the next step is funding it. Several methods are available to deposit money into your HSA. The most common approach involves setting up contributions directly through an employer’s payroll system.

Many employers facilitate pre-tax contributions via payroll deductions, meaning money is withdrawn from your paycheck before taxes are calculated. To arrange this, inform your employer’s human resources or benefits department of your desired contribution per pay period. This method reduces your taxable income directly and is often the most convenient.

Individuals can make direct contributions from their bank accounts via electronic transfers, such as Automated Clearing House (ACH) transfers, which move funds directly to your HSA. Most HSA providers offer online portals to initiate these transfers. You may also mail a check to your HSA custodian or use an online bill pay service.

Funds can be transferred or rolled over into an HSA. You can transfer funds from an existing HSA to another without tax implications. The IRS permits a one-time rollover from an Individual Retirement Account (IRA) to an HSA, though specific rules and limitations apply.

Tax Implications of HSA Contributions

Contributing to an HSA offers notable tax advantages. Contributions are tax-deductible, reducing your taxable income. This deduction is available even if you do not itemize deductions.

Funds within an HSA grow tax-free; interest or investment earnings are not subject to federal income tax. Withdrawals for qualified medical expenses are also tax-free. This combination of tax-deductible contributions, tax-free growth, and tax-free withdrawals provides a financial benefit.

To report HSA contributions, you will receive Form 5498-SA, “HSA, Archer MSA, or Medicare Advantage MSA Information,” from your HSA trustee. This form details total contributions made to your account. You will then use Form 8889, “Health Savings Accounts (HSAs),” to report contributions and distributions when filing your annual income tax return. This ensures IRS compliance and allows you to claim tax benefits.