How to Open an HSA If You're Self-Employed

For self-employed individuals, managing healthcare costs can be challenging without the benefits of employer-sponsored insurance. One way to alleviate some of the financial burden is by opening a health savings account (HSA). An HSA allows self-employed individuals with high-deductible health plans (HDHPs) to save pre-tax money for medical expenses. Since self-employed people are responsible for managing their own healthcare, an HSA can be an effective tool for covering out-of-pocket expenses while reducing taxable income. A financial advisor can also help you determine if an HSA makes sense for you. 

Understanding HSAs

An HSA is a tax-advantaged account designed to help individuals with high-deductible health plans (HDHPs) save for medical expenses. The funds in an HSA can be used for a wide variety of qualified healthcare expenses, such as doctor's visits, prescription medications and medical procedures. 

To be eligible for an HSA, you must be enrolled in an HDHP. For 2024, the IRS defines a high-deductible health plan as one with a minimum deductible of $1,600 for individuals or $3,200 for families ($1,650 and $3,300 for 2025). Additionally, the maximum out-of-pocket expenses for these plans cannot exceed $8,050 for individuals or $16,100 for families ($8,300 and $16,600 for 2025).

In 2024, self-employed individuals can contribute up to $4,150 to an HSA if they have individual coverage and up to $8,300 for family coverage ($4,300 and $8,550 for 2025). If you're 55 or older, you can contribute an additional $1,000 as a catch-up contribution. The flexibility of an HSA allows you to carry over unused funds from year to year, unlike flexible spending accounts (FSAs), which typically have a "use-it-or-lose-it" rule.

How to Open an HSA If You’re Self-Employed

For self-employed individuals, opening an HSA is a straightforward process. Here are five general steps to open an HSA, if you're managing your own healthcare coverage:

• Enroll in an HDHP: The first step in opening an HSA is to ensure you have an eligible HDHP. You can purchase an HDHP through the healthcare marketplace, directly from an insurance provider, or through other platforms that cater to self-employed individuals. Make sure the plan meets the IRS's minimum deductible and out-of-pocket requirements for HSA eligibility.
• Choose an HSA provider: Once you have an HDHP, the next step is to choose an HSA provider. Many financial institutions, including banks, credit unions and online investment platforms, offer HSAs. When selecting a provider, consider factors such as fees, interest rates and investment options, as some HSAs allow you to invest your contributions in mutual funds or other securities.
• Complete the application process: After choosing a provider, you'll need to complete the application process to open the account. Most HSA applications can be completed online, requiring basic information like your personal details, HDHP information, and a selection of how you want to fund the account. Some providers may require you to make an initial deposit to open the account.
• Set Up Contributions: As a self-employed individual, you're responsible for making your own contributions to the HSA. You can fund the account through direct deposits from your bank, and you may want to set up automatic transfers to ensure consistent contributions. Remember, you can contribute up to the IRS's maximum limit, and your contributions are tax-deductible.
• Keep Track of Your Expenses: After opening your HSA, it's essential to keep track of all medical expenses that you plan to reimburse using HSA funds. Retain receipts and documentation for tax purposes, as the IRS may request proof that withdrawals were made for qualified expenses.

Benefits of Having an HSA

Having an HSA can offer several advantages, particularly for self-employed individuals who manage their own healthcare.

One of the most significant benefits is the tax savings. Contributions to an HSA are tax-deductible, reducing your taxable income. And any earnings or interest generated in the account are tax-deferred–you’ll be taxed if you make withdrawals for non-medical purposes. Withdrawals for qualified medical expenses are also not taxed, providing a way to save for healthcare costs without incurring tax liabilities.

HSAs also offer flexibility that other savings accounts don't. Unlike other health savings vehicles, the money in an HSA rolls over year after year, allowing you to build up a substantial balance over time. This makes an HSA a useful tool not just for current medical expenses, but also for future healthcare needs, including those that arise in retirement.

Another key benefit is that HSAs provide a way to invest your contributions. Many HSA providers offer investment options that allow you to grow your funds through stocks, bonds, or mutual funds, much like a 401(k) or IRA. This can help your savings grow faster, but it can also come with the risk of loss.

An HSA also gives you complete control over how your healthcare dollars are spent. You decide how much to contribute, how to invest your funds and when to withdraw money for medical expenses.

Bottom Line

Opening an HSA as a self-employed individual is a simple process that can lead to significant tax savings and provide a long-term strategy for managing healthcare costs. By enrolling in an HDHP, choosing the right HSA provider and consistently contributing to your account, you can build a valuable resource for medical expenses now and in the future. HSAs can offer flexibility, investment opportunities and tax advantages that can benefit self-employed individuals who are looking for smart ways to manage their healthcare expenses.

Health Savings Tips

• A financial advisor could help you create a plan to save for retirement and pay for health expenses. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
• You can boost your retirement savings by using HSA funds for qualified medical expenses in retirement, allowing other retirement accounts to continue growing tax-deferred. Here how you can make your HSA work for your nest egg.

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