Health Savings Account (HSA)

Self-Directed Health Savings Account

A self-directed health savings account (HSA) works just like a typical HSA and is governed by the same IRS Rules. They both help individuals and families save tax-advantaged money to pay health care costs. Your deposits are tax deductible. Earnings and interest in the account are tax free if used for qualified medical expenses.

Although an HSA must be used along with a high-deductible health insurance plan, the account funds can help you pay your health insurance deductible and other costs your plan may not cover including prescriptions, eye care, dental care, and some over-the-counter medications.

Funds grow in an HSA through annual cash contributions and on returns of investments in the account. Typical HSAs, with mainstream custodians, limit plan assets to things like stocks, bonds, ETFs, and a few other assets. A self-directed HSA works just like a self-directed IRA and allows you to choose your own assets and to invest in a wide range of alternative assets to expand wealth-building opportunities in the account.

A Self-Directed HSA Is a Great Retirement Planning Tool

HSA funds can be used to pay for medical expenses now, in the future, and throughout retirement. You are not required to take annual distributions so the unused funds can grow year after year. This can help you significantly supplement your retirement income.

When you turn 65 and enroll in Medicare, you’re not allowed to make HSA contributions anymore. But, you can take penalty-free distributions from the account for any reason. You’re taxed on those distributions (if they are not for qualified medical expenses) just as you would be taxed on distributions from a tax-deferred retirement plan, such as a traditional IRA or 401(k).

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How Do HSAs Work?

If you’re eligible, you’ll capture these benefits by using an HSA:

  • Tax-deductible contributions
  • Year-over-year accumulation of contributions and earnings
  • No annual distribution requirement
  • If you change health plans, you do not lose the funds
  • Tax-free distributions for qualified medical expenses
  • Distributions for things besides qualified expenses are taxed, and if taken before you reach 65 years, incur a penalty
  • You can make penalty-free withdrawals for any reason at age 65

Can I Open an HSA on My Own?

You can open an HSA on your own if you meet the following criteria:

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What Are Qualified Medical Expenses?

  • Health care plan deductible
  • Cost of doctor visits
  • Dental care (office visits, X-rays, cleanings, fillings, braces)*
  • Vision care (exams, glasses, contacts, surgery)*
  • Medications (prescriptions, prescribed OTC meds, insulin)
  • Chiropractor
  • Bandages and other OTC first-aid kits
  • Disabled dependent care expenses
  • Capital improvements to home for medical care
  • Long-term care
  • Psychiatric/psychology care
  • Lodging/trip expense for medical care

*Only expenses not covered under another plan as explained in IRS Publication 502.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided additional inclusions, including the ability to pay for over-the-counter medication without a prescription.

Are HSAs Worth It?

HSAs are different than flexible spending accounts (FSA) and far more beneficial.


  • HSAs can be employer sponsored or you can open one on your own
  • Higher contribution limits than FSAs
  • The leftover cash rolls over every year
  • You can use the rolled over cash for the next year’s medical costs or you can reinvest those funds for additional income


  • FSAs can only be provided by an employer
  • Lower contribution limits than HSAs
  • You generally lose leftover cash at the end of the year if you don’t use it
  • Because the leftover funds don’t rollover, you don’t have the benefit of investing funds

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HSA Contribution Rules

You can make contributions to your HSA until the date of your income tax filing deadline, which is generally April 15th each year.

  • Contributions must be made in cash
  • You can do a one-time rollover from traditional or Roth IRA to HSA
  • You, an employer, or anyone else can contribute to your HSA
  • Total contributions must not exceed annual contribution limits
  • Deductions can be taken even if you don’t itemize

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Contribution Limits of a Self-Directed Health Savings Account

Health Savings AccountS (HSA) 2023 2024
Individual $3,850 $4,150
Family $7,750 $8,300
Catch-Up Contribution (if over age 55) $1,000 $1,000