What is a Health Savings Account (HSA)?
An HSA is a tax-advantaged account designed to help individuals with high-deductible health plans (HDHPs) save for medical expenses. The funds you contribute to an HSA are not subject to federal income tax at the time of deposit. Furthermore, the funds can be invested and grow tax-free, and withdrawals used for qualified medical expenses are also tax-free.
Key Benefits of an HSA
Tax Advantages:
Pre-Tax Contributions: Reduce your taxable income by making pre-tax contributions through payroll deductions.
Tax-Free Growth: Any interest or other earnings on the HSA balance grows tax-free.
Tax-Free Withdrawals: Funds used for qualified medical expenses are not taxed.
Flexibility and Portability:
Roll-Over Feature: Unused funds roll over year to year, there is no "use it or lose it" policy as with Flexible Spending Accounts (FSAs).
Ownership: The account is yours to keep, regardless of changes in employment or health coverage.
Long-Term Savings:
HSAs can be used to save for future health care needs, providing a financial cushion for retirement when health care costs may increase.
Who is Eligible for an HSA?
To be eligible for an HSA, you must be enrolled in a High Deductible Health Plan (HDHP) and:
Not be covered by another non-HDHP health insurance plan.
Not be enrolled in Medicare.
Not be claimed as a dependent on someone else’s tax return.
Maximizing Your HSA
Contribution Limits for 2023:
Individual coverage: $3,850
Family coverage: $7,750
Catch-Up Contributions: Individuals age 55 and older can contribute an additional $1,000 per year.
Investment Options: Consider various investment options available for your HSA funds to maximize growth.
Qualified Medical Expenses
HSAs can be used to pay for a wide range of health care expenses, including:
Doctor visits and surgical procedures
Dental and vision care
Prescription medications and over-the-counter drugs with a prescription
Certain medical equipment
Always retain receipts and records of your medical expenses to validate your tax-free withdrawals.
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