How to Open an HSA Account Without an Employer

A health savings account (HSA) is a smart way to store away extra cash, tax free, to pay for approved medical expenses. Essentially, it’s a personal savings account that can be used only for medical expenses. While the option to open an HSA is typically offered by your employer, you still have options even if you don’t have insurance through your employer. Let’s take a look at how—and why—to open an HSA on your own.

Why you should open an HSA

An HSA is a good investment because it offers triple tax savings: Contributions are tax-deductible (or made pre-tax, if funded through a payroll deduction), the interest earnings are tax-free, and you can take distributions at any time to pay off medical expenses—including your deductible—without tax penalties. Unlike an FSA, you don’t lose leftover funds at the end of the year—you can keep them invested.

You can also withdraw money after age 65 for non-medical expenses, but it will be taxed in that case (just without a penalty). So although the funds in the account will grow tax-free, it’s not exactly like a Roth IRA. And if you take distributions before age 65 for non-qualified expenses—including things like cosmetic surgery or a health club membership—you’ll be hit with a 20 percent penalty and pay income tax.

How to open an HSA on your own, without your employer

Here are a few tips for opening an HSA without an employer:

• Check if you’re eligible. To open an HSA, you must have a high-deductible health insurance plan (HDHP). The IRS sets minimum deductible amounts each year that qualify; these are $1,500 for individual coverage or $3,000 for family in 2023.
• Choose an HSA provider. Many banks, credit unions, insurance companies, and investment firms offer HSAs. Shop around for the best fees, investment options, and user experience. Some popular HSA providers are Fidelity, Lively, and HealthEquity.
• Open the account. The process is similar to opening a normal bank account. You’ll need to provide personal information and paperwork to verify your identity. Make sure to ask about any account opening or monthly maintenance fees.
• Fund your HSA. You can contribute up to $3,850 for individual or $7,750 for family HDHP coverage in 2023. Contributions are pre-tax or tax deductible. Maximize contributions if you can afford it. (More on that below.)
• Invest your funds. Many HSAs allow you to invest your balance in mutual funds and ETFs after reaching a certain threshold, so your money can grow tax-free.
• Use your HSA for medical expenses. HSA funds can pay for copays, prescriptions, dental care, glasses, and more. Keep receipts. Just know your HSA rules and limits.
• Let your HSA money grow. HSAs are a triple tax advantage tool. Let your balance and investments grow over time to save for future healthcare costs in retirement.

How much should you contribute to an HSA?

The minimum to open an HSA will depend on where you choose to start your account; a reasonable opening balance to aim for is $500, which will give you plenty of options. You’ll want to look for an account with good debit card functionality and online banking options. If you’re looking at it as a retirement account, long-term investment options and fees will be your key considerations.

Any place you open your account will likely have a range of investment options, including mutual funds, ETFs, and target date funds—though your choices will be different everywhere. If your insurer or bank doesn’t offer target date funds, you could try to replicate them—but the big thing to look out for is fees. Take into consideration monthly account fees, trading fees, investment fees, account-inactivity fees, and closing fees.

As medical costs continue to rise, experts will tell you to contribute the max to the HSA and then put any additional funds into an IRA or Roth. That’s not a terribly bad idea—as long as you remember you’ll have more to deal with in retirement than just healthcare costs.