Health savings accounts are poised to get a big boost in Trump’s tax package
Tucked inside Republicans’ “big, beautiful” tax package, which passed the House early Thursday, are provisions expanding health savings accounts (HSAs), including the biggest contribution increase ever for next year, along with a range of other benefits.
Learn more: What is a health savings account (HSA)?
“It’s definitely expanding HSAs with new things people can use their HSA dollars for,” Kaye L. Pestaina, vice president and director of KFF’s program on patient and consumer protection, told Yahoo Finance.
While an HSA can be a savvy way to boost savings for retirement and is considered a go-to tool by many financial planners, they were designed as a way to pay current healthcare costs, Pestaina said.
“The provisions are aimed to get rid of certain barriers for lower-income people that would allow them to double what they can contribute annually,” she said. “So it’s good news, but they still need the money now even though, in theory, they could leave the money in these accounts to save for future costs.”
An HSA offers a triple tax advantage. It’s the only account that lets you put money in on a tax-free basis, lets that money build up tax-free, and lets it come out tax-free for qualified healthcare expenses. (Some states assess state taxes.)
In order to put money into an HSA, you must be enrolled in a high-deductible health plan (HDHP). In those plans, you pay a lower premium per month than other types of health insurance plans, but a heftier annual deductible (the amount you pay for covered medical costs before insurance kicks in).
For 2025, that translates to a deductible of at least $1,650 for individual coverage and $3,300 for family coverage.
You can also open an HSA as a self-employed freelancer or business owner if you have a qualified high-deductible health plan.
Some employers match contributions to HSAs, similar to employer-provided retirement savings accounts. Your contributions roll over year after year and are yours to keep when you retire or change employers.
There’s a hefty 20% penalty on any withdrawal amount not used toward a qualified medical expense, and you’ll pay income tax on the disqualified sum.
For anyone 65 or older, the penalty is gone, meaning you can withdraw funds for any purpose and only pay income tax on it if it’s not a qualified medical expense.
Here’s a rundown of the provisions included in the legislation that would be effective January 2, 2026, if signed into law:
1. Increased contribution limits. The 2025 contribution limit for an HSA is $4,300 for individuals and $8,550 for families. Individuals who are 55 or older can contribute an additional $1,000.
Read more: What are HSA contribution limits for 2025?
Under the bill’s provisions, annual contribution limits for HSAs would double, jumping to $8,600 for individuals with self-only coverage and to $17,100 for family coverage.
Increased contribution phases out for adjusted gross incomes between $75,000 and $100,000 (individual) and $150,000 to $200,000 (joint filers with family coverage).
2. Both spouses could make catch-up contributions to the same HSA. Under current law, eligible individuals and spouses who are 55 or older by the end of the tax year can increase their contribution limit up to $1,000 for their own accounts.
Under the change, spouses who are both eligible are allowed to combine their basic and catch-up contribution amounts and allocate them to one spouse’s HSA.
3. More flexibility with FSAs. When it comes to married couples, there are rules and limitations regarding HSA usage, particularly when both spouses have a flexible spending account (FSA). Right now, individuals are ineligible to contribute to an HSA if their spouse has an FSA, but that prohibition would go away.
4. Gym memberships and other fitness expenses qualify. Currently, funds from an HSA can only be used for “qualified medical expenses” — and your pilates class definitely doesn’t count. Under the new legislation, it would, along with any gym membership. Annual funds from HSAs for this expense would be capped at $500 for single taxpayers and $1,000 for joint filers.
5. Concierge medical care qualifies. A Direct Primary Care (DPC) plan, often called a concierge healthcare plan, offers personalized, top-drawer healthcare services for a membership fee where you shell out a monthly, quarterly, or annual fee directly to a physician or practice for access to services.
Under current law many of these arrangements are not eligible to be paid for with your HSA money. Under the provision, certain DPC fees would be HSA eligible if the fee did not exceed $150 monthly for individuals, or $300 monthly where more than one individual is covered.
6. More years to contribute. People who are 65 or older and enrolled in Medicare Part A would be able to continue to contribute to an individual HSA. Right now, when a person reaches age 65 and enrolls in Medicare, they can no longer contribute to health savings accounts.
7. Rollovers allowed. If you are newly enrolled in an HDHP and have an existing health FSA, you would be able to roll over those funds into an HSA. Plus, you would be able to use a distribution from your HSA as payment for medical expenses incurred before the HSA was established, with some restrictions.
8. More health insurance plans can provide HSAs. Individual market bronze and catastrophic plans would be treated as HSA-qualified HDHPs. Under existing law, these plans offered in the individual market are not considered HDHPs, so they’re ineligible to be paired with an HSA.
How many Americans would be able to take advantage of the increased contribution limits is uncertain.
Only about 11% of HSA accountholders contribute the maximum, Jake Spiegel, a senior research associate at the Employee Benefit Research Institute, told Yahoo Finance. That’s extra challenging while also saving for retirement, paying bills, and saving for kids’ college.
Meanwhile the reality, as Pestaina noted, is that most account holders use their HSAs to pay for current medical expenses and do not take advantage of all the tax benefits HSAs offer for building retirement savings — but that’s starting to shift.
Learn more: A step-by-step guide to retirement planning
Last year, roughly 3.5 million HSA holders, representing about 9% of all accounts, had invested a portion of their HSA dollars, up from about 2.6 million in 2022, according to HSA advisory firm Devenir.
The higher annual contribution levels could potentially push people to consider using these accounts as a retirement savings vehicle. Medicare has plenty of out-of-pocket expenses and doesn’t cover most dental, vision, or hearing expenses, or long-term care.
On average, a 65-year-old retiree who left the workforce last year may need $165,000 in after-tax savings to cover health care expenses throughout retirement.
“Most people don’t think about the big health hiccups that can occur — unexpected dental costs or hearing aids can cost a small fortune,” said Carolyn McClanahan, a certified financial planner and physician.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including the forthcoming “Retirement Bites: A Gen X Guide to Securing Your Financial Future,” “In Control at 50+: How to Succeed in the New World of Work” and “Never Too Old to Get Rich.” Follow her on Bluesky.
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