What is a Health Savings Account (HSA)?
A health savings account (HSA) combines high deductible health insurance with a tax-favored savings account. Money in the savings account can help pay the deductible. Once the deductible is met, the insurance starts paying. Money left in the savings account earns interest and is yours to keep.
Health Savings Account Advantages:
- Tax-deductible
Contributions to the HSA are 100% deductible (up to the legal limit) — just like an IRA.
- Tax-free
Withdrawals to pay qualified medical expenses, including dental and vision, are never taxed.
- Tax-deferred
Interest earnings accumulate tax-deferred, and if used to pay qualified medical expenses, are tax-free.
- HSA money is yours to keep
Unlike a flexible spending account (FSA), unused money in your HSA isn’t forfeited at the end of the year; it continues to grow tax-deferred.
Why High Deductible Health Insurance?
To get the benefits of an HSA, the law requires that the savings account be combined with high deductible health insurance. High deductible health insurance costs less than traditional $250 or $500 deductible coverage because the insurance company doesn’t have to process and pay claims for routine, low-dollar medical care.
A health savings account (HSA) is a tax-favored savings account created for the purpose of paying medical expenses.
