Health savings accounts (HSAs)


Save for medical expenses, manage your health care spending, and gain potential tax advantages with a health savings account (HSA). Paired with a high-deductible health plan, an HSA is a tax-free way to pay and save for current and future medical expenses such as physician visits and prescription drugs.

Vanguard does not offer its own health savings account. However, there are a number of banks and other institutions that offer Vanguard funds for HSAs as part of their investment options. Banks, credit unions, insurance companies, and IRS-approved entities are generally the best places to look for an HSA custodian.

One unique organization that you may wish to consider for an HSA is a company called HealthSavings Administrators. HealthSavings Administrators is the sole provider to offer only Vanguard investment options. It's also the only provider that allows individuals to invest directly into a choice of 22 Vanguard funds for their HSA without any other minimum bank account requirements.

As with any investment, low costs are an important way to keep more of your investment returns for medical expenses. Choosing Vanguard funds for your health savings account is an excellent way to minimize your expenses since, on average, Vanguard mutual fund expense ratios are 82% less than the industry average.*

To qualify for an HSA, you:

  1. Must be enrolled in a high-deductible health plan (HDHP) that does not cover all medical expenses.
  2. Cannot be covered under another health insurance plan, including Medicare coverage, with certain exceptions.
  3. Cannot be claimed as a dependent on someone else's tax return.

HSAs for individuals

HSAs offer many benefits to investors. The accounts are:

  • "Triple tax-advantaged."

    • Your account contributions are pre-tax or tax-deductible. (There are annual limits to the amount of contributions.)
    • All earnings and interest are tax-free.
    • Any withdrawals for qualified medical expenses are tax-free. Plus, once you reach age 65, all nonmedical withdrawals are taxed at your current tax rate, just like a traditional IRA.
  • Fully portable. As with an IRA, you own the account outright and can roll it over to another HSA custodian, subject to some restrictions.
  • Designed for the future. Your contributions and earnings, combined with the power of compounding help your account grow over time. And unlike IRAs, HSAs do not have required minimum distribution (RMD) rules.
  • Not limited by your income. No matter how much you earn, if you meet the other HSA qualifications, you can open an account. (Annual contribution limits apply.)

HSAs for employers

Offering HSAs to employees as an alternative to traditional health insurance can help increase an employer's flexibility in managing health care costs and serve as a key recruiting incentive. HSAs offer employers:

  • Lower premiums on employees' health plans. Premiums are typically lower when compared to traditional health plans because HSA participants must enroll in a high-deductible health plan (HDHPs carry a higher deductible than traditional health plans).
  • Lower payroll taxes. Any HSA contributions made by employers are pre-tax or tax-deductible, reducing gross payroll. Employee contributions are tax-deductible to the employee.
  • An additional retirement tool. HSA funds carry over from year to year and are tax-deferred. After age 65, HSA balances can still be used tax-free for medical expenses. They can also be used for nonmedical expenses; employees pay only their prevailing tax rate.
  • An incentive to be better stewards of their health care dollars. HSAs encourage employees to be more aware of the true cost of health care and can translate into smaller premium increases in subsequent years.


Getting started

To open an HSA featuring Vanguard mutual funds, select the appropriate link on the right side of the screen and complete an application.


  • This article is intended to provide general information and should not be considered tax advice. You should consult a tax advisor for specific information on how tax laws apply to your situation.
  • Mutual funds, like all investments, are subject to risk.
  • The links to the HealthSavings Administrators website take you to a site outside Vanguard is not responsible for the content of third-party websites.

* Vanguard average expense ratio: 0.18%. Industry average expense ratio: 1.02%. Sources: Vanguard and Lipper, a Thomson Reuters Company, as of December 31, 2014.

A type of investment account available to most employees who have health care coverage through a high-deductible health plan (HDHP). Individuals eligible for an HSA can make pre-tax or tax-deductible contributions to the account, and all earnings and interest are tax-exempt, even when withdrawn to pay for eligible medical expenses. Employers also may make tax-exempt contributions on behalf of their employees.

A health insurance plan with:

  1. Higher deductible payments than most other plans. Refer to IRS publication 969 for deductible requirements. These deductibles are indexed annually for inflation.
  2. Maximum limits on the deductible and amount of annual out-of-pocket medical expenses.

The out-of-pocket medical costs are known as "first-dollar medical expenses." (Preventive care is often exempted from these expenses.) An HDHP can be a Health Maintenance Organization (HMO), a Preferred Provider Organization (PPO), or an indemnity plan, as long as it meets certain requirements.