Managing health costs and choosing a health care plan can be challenging because of all the unknowns, especially for families. High-deductible health plans, or HDHPs, have gained popularity for their unique health savings benefits, one of which is the ability to open a Health Savings Account.
Read more: Find out which type of investment accounts are right for you
What is an HSA?
An HSA is a tax-advantaged savings account that allows you to save and pay for qualified medical expenses that aren’t covered by your High Deductible Health Plan (HDHP).
HSAs aren’t available through Ally Invest or other brokerages. Instead, they are offered as part of a health insurance package, typically through employer-provided benefits or separate health coverage.
How does an HSA work?
With an HSA, your contributions, earnings and distributions put toward qualified expenses are not taxed, which can help you reduce your overall health-related costs each year.
While eligible expenses can vary by plan, they may include:
Deductibles
Copays
Coinsurance
Dental
Vision care
Other health care costs like prescription drugs and over-the-counter medications
Any unused funds roll over year to year, accumulating for future use.
An HSA is a tax-advantaged savings account that allows you to save and pay for qualified medical expenses that aren’t covered by your High Deductible Health Plan.
Who can contribute to an HSA?
Any eligible individual covered by an HDHP can contribute to an HSA. Their employer or family members can also make contributions on their behalf.
Benefits of an HSA
Opening an HSA can save you money, especially if you have significant medical needs.
Triple tax advantage
HSAs have several tax benefits, including:
Tax-deductible contributions (or pre-tax if made through payroll)
Tax-free growth on earnings
Tax-free withdrawals when used for qualified medical expenses
Flexibility and control
With an HSA, there is no “use it or lose it” rule, meaning your funds remain available to you from year to year. An HSA is also a portable account, so it remains open and the funds available, even if you change jobs.
HSA contribution limits
Like a tax-advantaged retirement account, the IRS sets annual contribution limits for HSAs. For 2025, the limit for individual coverage under an HDHP is $4,300, and for families, $8,550. An Ally Bank Savings Account can help you hold onto any additional money you’d like saved for health expenses.
Maximizing your HSA
Every individual’s ability to contribute to their HSA is different. You should consider contributing what you can. While there is potential to lose money, you may also choose to invest your HSA funds or use them to help you reach your retirement goals.
Investing Your HSA Funds
Much like a 401(k) or IRA, you can use your HSA funds for investing. Depending on the account, you may be able to direct your own investments or use tools that automatically manage your investments. The best part is that because HSAs are triple tax-advantaged, any earnings you make will grow tax-free and can be withdrawn tax-free (if put toward qualified expenses). It is important to remember that with money growth opportunity, there is also a potential for loss.
Using HSA for retirement planning
If you’re aiming to retire early, the funds in your HSA can help hold you over until you hit 65, the age minimum for Medicare coverage unless an exception applies (e.g., disability). Once you turn 65, you can start using your remaining HSA money toward reimbursing yourself for previous medical expenses, paying for Medicare premiums and other health care costs, and anything else — with the caveat that you will need to pay state and federal taxes on those distributions.
How to open an HSA
You may be able to enroll in an HDHP through your employer if they provide health insurance benefits. You can also find HDHPs within the HealthCare.gov marketplace, which allows you to filter by those eligible for an HSA. HSAs are often paired with HDHPs, but depending on your plan, you might have to open one separately at a financial institution that offers them.
To open an HSA:
Verify eligibility
Select a provider
Set up regular contributions
An account for your health
A health savings account can save you money and give you peace of mind knowing you’re covered in the event of a medical emergency.
