A Health Savings Account (HSA) is a type of savings account that allows you to save money on a pre-tax basis to pay for qualified medical expenses. However, you can only contribute to an HSA if you have a High Deductible Health Plan (HDHP).
With an HSA, you can contribute money to the account, and the contributions are not taxed. Additionally, the interest or other earnings on the HSA are also not taxable. When you need to pay for qualified medical expenses, you can withdraw money from your HSA tax-free.
Furthermore, HSAs are individually owned, meaning the account belongs to you, not your employer. This also means that the money in your HSA will stay with you even if you change jobs, retire, or change your health insurance plan.
There are several advantages to having an HSA. First, it can help you save money on taxes. Since contributions are tax-deductible, you’ll reduce your overall taxable income. Moreover, the money in the account can be invested and grow tax-free. Finally, withdrawals for qualified medical expenses are also not taxed.
Another advantage of an HSA is that it can help you pay for medical expenses not covered by your HDHP. For example, you can use your HSA to pay for deductibles, copayments, and coinsurance. Additionally, you can use your HSA to pay for some medical expenses that your HDHP may not cover at all, such as acupuncture, ambulance costs, hearing aids, and long-term care services.
Lastly, HSAs offer flexibility. You can use the funds in an HSA at any time to pay for qualified medical expenses. Plus, you can keep your HSA even if you change employers or retire.
To be eligible for an HSA, you must be enrolled in an HSA-eligible HDHP. This type of health insurance plan typically has a higher deductible than a traditional health insurance plan, but it also has lower monthly premiums.
You also cannot contribute to an HSA if you have Medicare coverage or a health plan that pays its share of a covered service without you having to pay deductibles or copayments first (called “first dollar coverage”).
Banks, credit unions, and other financial institutions offer HSAs.
