A Health Savings Account (HSA) is a tax-advantaged financial account that individuals in the United States can use to save and pay for qualified medical expenses. Here are some advantages of having an HSA:
- Tax deduction – Contributions made to an HSA are tax-deductible, meaning they can be subtracted from your gross income when calculating your taxable income. This can result in a reduction in your overall tax liability.
- Tax-free growth – The funds in an HSA can be invested, and any interest or investment gains are tax-free, similar to a 401(k) or an Individual Retirement Account (IRA).
- Tax-free withdrawals for qualified medical expenses – Withdrawals from the HSA for qualified medical expenses are tax-free. This includes expenses such as doctor visits, prescription medications, and certain preventive care.
That’s a triple tax benefit!
- Flexibility: HSAs provide flexibility in terms of how you use the funds. You can use the money for current medical expenses or save it for future needs, including healthcare expenses in retirement.
- No Use-it-or-Lose-it Rule: Unlike some other healthcare accounts, there is no “use-it-or-lose-it” rule with HSAs. The money in the account is yours to keep and can continue to grow over time.
- At age 65, it turns into a retirement account
- You can read about additional HSA benefits here.
To be eligible for an HSA, you must have a high deductible health insurance plan. This can be through your work benefits or through the marketplace. What the IRS considers ‘high deductible’ changes every year. As do the contribution limits. So it’s advisable to stay informed about any updates to the regulations and consult with a financial or tax advisor for personalized advice based on your situation