A health savings account (HSA) might be saving's best-kept secret. It can help you save for medical expenses and create a financial cushion for the future.
If you're covered by an HSA-eligible health plan (often called a high-deductible health plan), you can open and contribute to an HSA. Even if you're still on your parents' health insurance (but not claimed as a dependent on someone else's tax return) you may be eligible to open an HSA. In an HSA, you can contribute pre-tax dollars from your paycheck automatically, and your employer might make contributions on your behalf as well. These wouldn't be taxable to you. If you don't have an HSA through your employer, your contributions would be deductible when you file your taxes. Then, you can invest contributions without paying federal income taxes on any growth while your assets remain in the HSA. The money you take out won't get taxed either, as long as it goes toward qualified medical expenses that meet certain conditions, for example, doctor visits and prescriptions.1
What does this have to do with retirement? Starting at age 65, there's no penalty to use HSA money for nonmedical expenses. You will have to pay income tax though, similar to pre-tax withdrawals from your pre-tax 401(k) or traditional IRA. An HSA is another way to save if you've maximized your 401(k) or IRA savings.
Read on to better understand the benefits of opening and contributing to an HSA in your 20s and 30s.
1. HSAs can be your emergency medical savings
Health care costs are likely to be lower in your 20s and 30s than when you're older,2 but that doesn't mean you won't ever get hit with a big bill. Medical expenses often come when you least expect. In fact, a 2024 survey revealed that 18% of 18- to 29-year-olds and 17% of 30- to 39-year-olds reported they had to borrow money to pay for health care for themselves or a household member.3
Money contributed to an HSA can avoid federal income tax. Because potential investing gains can be tax-free, your HSA savings can potentially grow, easing a financial blow and sparing your emergency savings, if an expensive health issue surfaces.
2. HSAs can also help you pay for certain health care, vision, and dental costs
Even if you don't have a big bill, HSAs can be helpful for covering everyday health expenses. Over-the-counter products such as pain relievers, allergy medicine, and acne treatments can be paid for with HSA funds. Copays for doctors' visits and prescriptions, dental cleanings and braces, eye exams, and contacts also count. Even vision correction procedures like LASIK can be paid for out of an HSA. Check out a list of eligible expenses.
3. HSAs can help you save for future medical expenses
Unlike flexible spending accounts (FSAs) that may have a "use it or lose it" rule, money in an HSA rolls over year after year. If you're saving for something big, for example fertility procedures or medically necessary surgery—HSA money could help you with funding. Whatever's left can be used in retirement.
On average, according to the 2025 Fidelity Retiree Health Care Cost Estimate, a 65-year-old individual may need $172,500 in after-tax savings to cover health care expenses in retirement.
Contributing to your HSA early and often and investing those savings can help you better afford medical care later.
The contribution limit for 2025 is $4,300 for individual coverage and $8,550 for family coverage. In 2026, the HSA contribution limit increases to $4,400 for individual coverage and $8,750 for family coverage.
4. HSAs can grow on their own over time
Funds in an HSA can be invested, giving that money the potential to grow like any other investment account. If you invest early, you could benefit from compound growth. The new money you've made has the potential to grow if you keep it invested. Even though investing isn't without risk of loss, the longer you keep your money in the market, the greater potential for growth.
To learn more, read our guide to HSA investing: Ways to invest in your health savings account.
5. Employers may help fund your HSA
Many employers make contributions to HSAs that they provide. The contribution amount may vary depending on your coverage type (individual or family) and compensation. Some employers may opt to contribute a lump sum to your HSA, often at the beginning or end of the year.
You're not tied to the HSA your employer provides. You can shop around and compare different options, but make sure you still receive contributions from your employer even if you decide to go with another provider for your own contributions. Note: You can only avoid FICA taxes for social security and Medicare (7.65% for most people) if you contribute to your HSA through your employer, so carefully weigh any decisions to go with another provider against this benefit.
6. HSAs offer a cushion when you change jobs
Potential medical expenses can be especially scary when you're in between jobs or doing freelance work. A healthy HSA can help pay for qualified medical expenses if you lose your health insurance. Also, if you're changing jobs, HSAs are portable.
If your new employer offers an HSA-eligible health plan with an HSA, it's possible to keep your old HSA or roll your funds into the new one.
If your new employer doesn't offer an HSA-eligible health plan, you can still keep your old HSA; you just won't be able to contribute to it.
Interested in learning more about HSAs? Visit our HSA homepage. If you have an employer-sponsored Fidelity HSA, you can log in to NetBenefitsLog In Required to access your account.