How to open an HSA
Last updated August 2026
Short answer
An HSA is the only account taxed nowhere, and the two things people get wrong are leaving it with a poor provider and leaving the balance in cash.
Confirm eligibility
You must be covered by a qualifying high-deductible health plan, which the plan documents state explicitly.
Disqualifying coverage includes a general-purpose health FSA, including one held by a spouse, Medicare enrolment, and being claimed as someone else's dependent.
A limited-purpose FSA covering dental and vision does not disqualify you, which is why some employers offer exactly that alongside an HSA plan.
Choosing a custodian
Employer-selected providers are convenient and frequently expensive, with monthly fees and limited fund menus.
Independent HSA custodians often charge nothing and offer ordinary index funds, and you are free to use one.
Compare the monthly account fee, any investment threshold and the fund expense ratios, because those three determine what the account actually costs.
Payroll or direct
Payroll contributions avoid income tax and payroll tax, which is roughly 7.65% more saving on the same dollars.
Direct contributions to an outside custodian are deductible on your return but do not escape payroll tax.
Contributing through payroll and transferring periodically captures both the tax saving and the better custodian.
Try it in Walnut
Walnut connects to your brokerage and reads an invested HSA alongside your other accounts, since for many savers it functions as a retirement account.
The 2026 limits
$4,400 for self-only coverage and $8,750 for family coverage.
An additional $1,000 catch-up applies from age 55, and it is per person, so two eligible spouses over 55 need two accounts to use both.
Employer contributions count toward the same limit rather than sitting on top of it.
Investing the balance
Most custodians hold contributions in cash until you direct otherwise, and many require a minimum before investing is available.
Keeping a buffer for near-term medical costs and investing the remainder is the standard approach.
Because qualified withdrawals are never taxed, growth inside an HSA is the most valuable growth available anywhere in the tax code.
Keep the receipts
There is no deadline for reimbursing yourself for a qualified expense, provided it was incurred after the account was established.
Paying medical costs from other money and saving the receipts lets the HSA compound while preserving the right to withdraw tax-free later.
That only works if the records survive, so a simple folder or scanned archive is part of the strategy rather than an afterthought.
Transferring an existing HSA
A trustee-to-trustee transfer moves the balance to a new custodian without limit and without tax, and it can be done repeatedly.
A rollover where the money passes through your hands is limited to one in twelve months and must be completed within 60 days, so the direct route is safer.
Investments generally have to be sold before a transfer, so timing it when you are comfortable being briefly in cash avoids an unwanted market call.
Sources
Eligibility, disqualifying coverage, contribution rules and qualified expenses are in IRS Publication 969 and Publication 502. The 2026 limits are from Rev. Proc. 2025-19. Walnut is informational and is not an investment adviser. This guide is educational and not personalized tax advice.
FAQ
How do I open an HSA?
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Confirm you are covered by a qualifying high-deductible health plan with no disqualifying other coverage, then open an account with your employer's provider or any HSA custodian you choose. Fund it, and then invest the balance above whatever cash buffer you want.
Do I have to use my employer's provider?
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No. You can open an HSA anywhere, and many people do because employer-selected providers frequently have higher fees and weaker investment menus. Using payroll deduction through the employer's provider does save payroll tax, which the alternative does not.
Why does payroll deduction matter?
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Contributions made through payroll avoid Social Security and Medicare tax as well as income tax. Contributing directly to an outside HSA only avoids income tax, which is a meaningful difference of roughly 7.65% on the amount.
Can I contribute to an outside HSA and still use payroll?
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Yes. A common approach is contributing through payroll for the tax saving and then transferring the balance periodically to a preferred custodian, which most providers allow without limit as a trustee-to-trustee transfer.
How much can I contribute in 2026?
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$4,400 for self-only coverage and $8,750 for family coverage, with an additional $1,000 catch-up from age 55. Employer contributions count against the same limit.
What disqualifies me?
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Other coverage that is not a high-deductible plan, including a general-purpose health FSA held by you or your spouse, Medicare enrolment, or being claimed as a dependent on someone else's return.
Should I invest the balance?
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Most custodians require a cash minimum before investing, and above that the case for investing is strong given the account's tax treatment. Keeping a buffer for near-term medical costs and investing the rest is the usual approach.
What happens if I lose HDHP coverage?
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The account remains yours and can still be spent on qualified expenses. You simply cannot contribute for the months you are not eligible, and the annual limit is prorated accordingly.
Can I move my employer HSA to a different provider?
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Yes, by trustee-to-trustee transfer, and it can be done repeatedly without tax. Many people contribute through payroll for the payroll tax saving and then transfer the balance periodically to a custodian with lower fees and better funds.