Health Savings Account (HSA)
An HSA is a federally approved, tax-exempt savings account designed for the purpose of paying medical expenses for individuals and families with a qualified high-deductible health care plan.
- Save for future health expenses
- Interest bearing
- Easy access to funds
- Tax-free earnings
- Spend it on approved medical expenses
Flexibility. You can use the funds in your account to pay for current medical expenses, including expenses that your insurance may not cover; or you can save the money in your account for future needs, such as:
- Health insurance or medical expenses if unemployed
- Medical expenses after retirement (before Medicare)
- Out-of-pocket expenses when covered by Medicare
- Long-term care expenses and insurance
Savings. You can save the money in your account for future medical expenses and grow your account through investment earnings.
Control. You make all the decisions about:
- How much money to put into the account
- Whether to save the account for future expenses or pay current medical expenses
- Which medical expenses to pay from the account
- Whether to invest any of the money in the account
- Which investments to make
Portability. Accounts are completely portable, meaning you can keep your HSA even if you:
- Change jobs
- Change your medical coverage
- Become unemployed
- Move to another state
- Change your marital status
Ownership. Funds remain in the account from year to year, just like an IRA. There are no "use it or lose it" rules for HSAs.
Tax Savings. An HSA provides you triple tax savings:
- Tax deductions when you contribute to your account
- Tax-free earnings through investments
- Tax-free withdrawals for qualified medical expenses
Who Can Have an HSA?
Any adult can contribute to an HSA if he/she:
- Has coverage under an HSA-qualified "high deductible health plan" (HDHP)
- Is not covered by any other health plan that is not an HDHP (other types of insurance like specific injury insurance or accident, disability, dental care, vision care, or long-term care insurance are permitted)
- Is not enrolled in Medicare
- Cannot be claimed as a dependent on someone else's tax return
Contributions to your HSA can be made by you, a family member, or your employer. However, the total contributions are limited annually. If you make a contribution, you can deduct the contribution (even if you do not itemize deductions) when completing your federal income tax return. Contributions to the account must stop once you are enrolled in Medicare. However, you can keep the money in your account and use it to pay for medical expenses tax-free.
High Deductible Health Plans (HDHPs)
You must have coverage under an HSA-qualified "high deductible health plan" (HDHP) to open and contribute to an HSA. HDHPs have a higher annual deductible than tradtional health plans. Any company that sells health insurance coverage typically offers HDHP policies.
HSA Contribution Rules
The total amount you or your employer may contribute to an HSA for any taxable year is dependent upon whether you have individual or family coverage under a high deductible health plan. HDHP policies and contribution limitations are revised each year to reflect cost-of-living increases.
In addition to the standard HSA contribution limits, if you have attained age 55 before the close of a taxable year, you may also contribute an additional amount known as a "catch-up" contribution.