How to Open an HSA Account in 7 Steps

As you explore how to open a health savings account (HSA) account, it’s a good idea to gain a better understanding of how they work and their benefits. These accounts offer tax advantages and help set aside money for medical expenses, including everyday expenses like over-the-counter pain medication or heartburn remedies. Get more out of the money you set aside for medical expenses by placing it in a qualified account.

Why Should You Consider Opening an HSA Account

Before you read the steps for how to open a health savings account, review these reasons for opening an account.

Tax Advantages

HSA accounts offer tax advantages at every turn. First off, you won’t pay taxes on the money you contribute to your HSA. And while the money is sitting in your account earning interest, you don’t have to worry about paying taxes on the interest either. Finally, when you withdraw money from the account to pay qualifying medical expenses, you won’t pay taxes on those withdrawals either.

Tax-free benefits help manage overall tax rates and help individuals and families use their finances efficiently. Unlike a Flexible Savings Account (FSA), HSA funds don’t expire and you don’t have to use them within the calendar year you make the contribution. That means contributing to the account is all benefit.

Lower Healthcare Costs

Healthcare expenses can be frustrating because they come out of nowhere. You can’t always plan for medical expenses, which can put undue strain on your finances. But having money specifically set aside for healthcare can help lower the amount of money you have to spend from your regular accounts and budget when surprises arise.

An HSA offers the opportunity to set up regular contributions, so you are planning for healthcare costs long before you need them. Plus, you’ll then be earning interest on those funds instead of allowing them to sit in your savings account.

You can use an HSA to cover your deductibles, copayments and other qualifying expenses.

Investment Opportunities

Once you overcome the question of how to start an HSA, you can start learning about the investment opportunities available through your account. By placing your money in long-term investments, you can enjoy stable, steady growth until you need the funds.

Most HSA accounts have a required threshold before you can start investing. And if your account goes below that threshold, you won’t be able to invest the funds until you surpass the threshold again.

Investing HSA funds as a younger adult can help you prepare for your future as you age and perhaps require more medical care. This can be a wise long-term financial strategy to aid in bolstering retirement funds as you prepare for all financial situations once you no longer work.

Retirement Savings

Once an HSA account owner turns 65, they can make non-medical withdrawals to help with retirement. These are penalty-free withdrawals, though the money is subject to income tax. In a sense, after age 65, an HSA can work a like a traditional IRA to provide retirement benefits.

Although you can take non-medical withdrawals, the best benefit for the account is to use the funds toward healthcare costs so you enjoy the tax-free advantages. And more than likely, at some point in retirement, you’ll face medical expenses that your HSA helps cover.

Saving money in an HSA throughout your life and using it strictly for unexpected medical expenses can lead to a nest egg to help cover healthcare costs in retirement.

Control Over Healthcare Decisions

Having the funds to cover healthcare expenses can provide individuals with more options for their care. When you have the funds to cover various procedures, drugs or specialists, it puts you in greater control over how and where you seek medical care.

More control over healthcare decisions can foster a sense of empowerment during what can otherwise be a time of stress and uncertainty. 

How to Open an HSA Account in 8 Simple Steps

Now that you know why you would consider a medical savings account, here’s a look at how to set up an HSA to begin saving for your healthcare expenses.

Step 1: Check Eligibility

Before getting too far in the process, make sure you’re eligible for an account. You’ll need to meet the following criteria.

• Enrolled in a qualified high-deductible health plan (HDHP)
• No secondary health insurance coverage from a non-HDHP plan
• Not enrolled in Medicare
• No one can claim you as a dependent on their tax return

Step 2: Choose an HSA Provider

If your employer does not provide an HSA, you’ll need to find a reputable HSA provider. Some factors to consider as you compare providers include:

• Fees
• Interest rates
• Investment options
• Ease of accessing and managing accounts
• HSA card type (Visa, MasterCard)
• Ways you can make contributions to the account

Every individual is unique and has differing needs for their financial accounts. Using a provider you already bank with could make for one less app on your phone or one less login to remember. Just be sure that the provider is reputable in the HSA sector so that you won’t lose your hard-earned medical savings because of inactivity on the account or fees.

Step 3: Gather the Necessary Information

As you prepare to open your account, you’ll want to have crucial information handy to make the process smooth.

1. Health insurance carrier name, coverage type and policy number
2. Applicant’s name, address and phone number
3. Social Security number and date of birth
4. Account and routing numbers for savings or checking accounts you want to connect to the HSA for easy contributions
5. Anticipated contribution amounts to set up recurring payments to begin building your healthcare savings

Step 4: Complete the Application

Once you’ve selected your ideal HSA provider and gathered the necessary information, you’re ready to apply for the account. Many financial providers now offer online applications, though some still require that you visit a branch location to open accounts.

Regardless of whether you apply online or in person, be sure you’re filling out the application clearly and completely. Missing details or inaccurate information could lead to account denial and mean you have to start the process all over again. Attach all required documentation to speed up the approval process and avoid repeat trips to the bank to provide further documentation.

Step 5: Fund Your HSA

You’re in control of how and when you contribute to your HSA. But you’ll find the best way to accumulate savings in the account is to set up payroll deductions or automatic recurring contributions. That way, you stay disciplined in setting aside specific funds for your medical expenses.

If you have an existing HSA or Archer Medical Savings Account (MSA) that you’re merging with the new account, read up on how to move funds out of the account into a qualified new account to avoid taxes and fees.

As you plan for how much to contribute monthly, keep in mind the federal limits for contributing to an HSA. For 2023, the IRS set the limit on HSA contributions to $3,850 for self-only HDHP coverage and $7,750 for family HDHP coverage. If you change from self-only coverage to family coverage at any point in the year, you can contribute the maximum family amount.

Step 6: Understand Your Investment Options 

Each HSA has different investment options. Review your HSA provider’s documentation on investments, including minimum balance requirements. It might be worth it to make one lump sum contribution to your account after setting it up just to be able to meet those requirements and start investing. However, just be sure that won’t put you over your maximum contribution amounts.

As you evaluate HSA investment options, consider the risk vs. reward each provides to find the one that best helps you balance growth with potentially losing your investment.

Step 7: Keep Records and Use Funds for Qualified Medical Expenses

Another important step in the process is learning how to get an HSA card. This will make it easier to pay medical providers directly instead of having to pay expenses out-of-pocket and then seek reimbursement from your HSA.

Maintain records of your bills and receipts for qualifying expenses you use your HSA to pay. These might be required in the case of a tax audit or if your HSA account provider questions whether an expense was a qualifying expense.

Step 8: Stay Informed and Update Beneficiaries

Monitor your account to understand how your investments are growing, what your funds look like and how to maximize your HSA benefits. Near the end of the year, you might make an additional lump sum contribution to avoid paying taxes in a higher bracket or to maximize your healthcare savings while you’re young and healthy.

Annually, you should review your beneficiary information to keep it up to date.

Save for the Unexpected with an HSA Account

Now that you know how to get an HSA, you’re ready to start saving for your future. Follow all rules and regulations as you put money away for planned and unexpected medical expenses to use your money wisely both now and many years to come.

Frequently Asked Questions