What is a Health Savings Account (HSA)?
The freedoms offered by HSAs have been available since the January 1, 2004 legislation. An HSA is the most progressive alternative to traditional health insurance, allowing you to set aside money specifically for healthcare in an investment savings account without any tax penalties whatsoever. HSAs facilitate the payment of current health expenses while simultaneously saving for future medical and retiree health expenses. Not only is the money in your account solely controlled by you independently of any third party or health insurer, but only you have the authority to determine what types of investments will be made to grow your funds. In order to be eligible for an HSA, you must first be covered by a High Deductible Health Plan (HDHP). Standard HDHP costs are usually lower than those of traditional health care, so the money saved on insurance expenses can be put directly into the Health Savings Account. Please see our HSA examples of significant savings with HSAs.
Similar in function to IRAs, the popularity of HSAs and HSA-eligible health insurance plans is rapidly spreading. This is why:
When used in combination with an HSA-eligible high deductible health insurance plan, HSAs allow you save for retirement while paying for current medical expenses.
The standard annual premium on an HSA-eligible high deductible plan is much less expensive, usually around $1000 less, than the annual premium for a lower-deductible health insurance plan.
Not only are contributions to an HSA 100% deductible, but they may also be made with no income tax penalties, up to set limits per year.
- You control and invest the funds in your HAS with the option of simply allowing unused funds to remain in the account and accrue interest year-to-year, tax-free.
- Money in your HSA can be withdrawn to pay for qualified medical expenses with no tax penalties and funds can also conveniently be used for purposes other than healthcare, although there are taxes and fees associated with non-medical withdrawals.
- Similar to IRA guidelines, sole ownership of the account belongs to the employee, not the employer. But unlike an IRA, an employer CAN contribute to an HSA.
Before choosing an HDHP for use with an HSA, it is important to be sure that your selected high-deductible plan is HSA-eligible.
Health Savings Account (HSA) FAQs
- Can I roll over funds from other accounts into my HSA?
- How can I utilize my HSA funds?
- How do I begin this process?
- How do I know my money safe?
- How does an HSA help me save on taxes?
- How much can I contribute to my HSA?
- What are my extra costs if I choose an HSA?
- What are qualified medical expenses?
- What is a Health Savings Account (HSA)?
- What is an HSA-eligible insurance plan?
- Where can I invest my HSA funds?
- Why should I consider getting an HSA?