Introduction to Health Savings Accounts (HSAs)
A Health Savings Account (HSA) is like a 401(k) for healthcare. It is a tax-advantaged personal savings
or investment account that individuals can use to save and pay for qualified health expenses, now
or in the future. Paired with a qualified high deductible health plan (HDHP), an HSA is a powerful
financial tool that empowers consumers to be more actively involved in their health care decisions.
However, unlike other financial savings vehicles (Roth IRA, Traditional IRA, 401K, etc.), an HSA has the
unique potential to offer triple tax savings through:
* Pre-tax or tax-deductible contributions to the HSA
*Tax-free interest or investment earnings
*Tax-free distributions, when used for qualified medical expenses.
Contributions can be made by the employer, the employee/individual, or both. Tax-free withdrawals
can be made to pay for qualified medical expenses incurred by the account holder, spouse, children
and other dependents.
HSAs are also portable, which means that individuals keep their HSAs, if changing jobs or becoming
unemployed. Also, since the account is owned by the individual, there is no “use-it-or-lose-it”
provision, like with a Flexible Spending Account (FSA). Instead, unused contributions roll over each
year, with interest and/or investment earnings compounding on a tax-free basis, like an IRA or 401(k).
HSAs offer the potential for long-term, tax-free savings that can be used for future medical expenses,
such as Medicare premiums and certain long-term care expenses and insurance.
Any adult who is not already enrolled in Medicare and is covered by an HDHP (and has no other first
dollar coverage except for preventive care) may establish an HSA. There are no income limitations