A Health Savings Account (HSA) can be a valuable tool for managing health care expenses and long-term financial goals. Discover how HSAs work, who can open one, and the tax benefits that can help you grow your savings.
An HSA is a special savings account that helps you put aside money to pay for medical costs. You can use it to pay for qualified medical expenses like deductibles, copays, prescriptions, dental cleanings, eyeglasses, and over-the-counter medicine.
Unlike a Flexible Spending Account (FSA), the money you put into your HSA is always yours, and you don't lose it if you don't spend it all in one year. You can even invest the funds in your HSA to help your savings grow over the years.
HSAs are typically available through a bank or investment company that can help you manage your funds. You can enroll in an HSA on your own or through an employer plan if you meet certain eligibility requirements.
You may qualify to open an HSA if you:
- Are enrolled in a qualified High-Deductible Health Plan (HDHP). An HDHP is a health insurance plan with lower monthly costs but a higher deductible than most traditional plans, so you may pay more costs yourself.
- Don't have medical benefits from any other non-qualified health plan
- Can't be claimed as a dependent on someone else’s tax return
- Aren’t eligible for Medicare
An HSA can help you stretch your health care dollars further and help you prepare for your financial goals because accounts have a triple tax advantage. Here's how each of those tax benefits works in action.
The money you put into the account is not taxed.
If you contribute through payroll deductions at work, that money comes right out of your paycheck before your taxes are calculated.
Payments are completely tax-free on qualified medical expenses.
You should always confirm what expenses are allowed with your specific HSA. If you're under 65, non-qualified expenses will be taxed, and you may get a 20% tax penalty.
Any interest or investment earnings on the money in your HSA grow tax-free.
This can help prepare for large expenses later. After you turn 65, you can use your HSA funds for any reason without a penalty, though you'll pay taxes on the non-medical costs.
You can make regular contributions to your HSA on your own or through payroll deductions, if your employer offers that option. The IRS sets a yearly limit for how much can be contributed, so be sure to check the limit at the start of each year.
You'll likely get a debit card or checks connected to your HSA that make it easy to pay for eligible health expenses with your account. You can also pay out-of-pocket and save your receipts to get reimbursed from your HSA funds later.
In addition to withdrawals for medical expenses, you can choose to invest a portion of your funds through your HSA provider portal. This gives your account the chance to build even more for future health needs or financial goals after 65, like retirement.
Get reliable answers to your insurance questions, such as how to get prior authorization or submit a claim.
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