What is a Health Savings Account (HSA)?

A health savings account, commonly referred to as an HSA is a triple tax-advantaged account that individuals set up in conjunction with a qualifying High Deductible Health Plan.

What are the requirements of an HSA? Am I eligible?

• You need to have a qualifying High Deductible Health Plan. This essentially means that you have to pay for all covered medical services, except preventative care, before your health insurance kicks in. So, no copays or coinsurance before your deductible is met.
• You can’t be enrolled in any other non-HSA qualified health insurance plan.
• You can’t have or be eligible to use a general purpose Flexible Spending Account (FSA). Limited purpose FSAs are allowed for Dental, Vision, and Dependent Care if your HDHP doesn’t cover those services. Be sure to check with your employer in case this applies to your situation.
• You can’t be claimed as a dependent n someone else’s tax return.
• You can’t be enrolled in Medicare (Part A and Part B) or Medicaid.

How does an HSA work?

An HSA is an account that is setup by individuals, but if employed, often times are offered via their employer. It is important to understand that the account belongs to the individual, NOT the employer. The HSA is a triple tax-advantaged savings vehicle where the funds can be used for qualified medical expenses. You contribute money on a pre-tax basis, your money can be invested or earn interest (no taxes on such growth), and be withdrawn at any time and with no penalty so long as the money is used for qualified medical expenses.

Which expenses are HSA-eligible?

You can use your HSA money on all qualified medical expenses as defined by the IRS. The IRS Publication 502 has the full list here of things that are qualified, are not qualified, and could potentially be qualified based on certain circumstances. Please visit the IRS site for the most up-to-date information.

What are the benefits of an HSA?

The HSA is a triple tax-advantaged savings account, meaning:

1. You put money in tax-free. If you are an employee whose employer’s works with an HSA provider, this will be taken out as a pre-tax deduction every pay check. If you are an individual, you fund the account with your post-tax dollars and at the end of the year, you will get a tax form showing the total amount of contributions that you can deduct from your taxes.
2. You can earn interest on your money or even invest it. Any gains you make are tax-free.
3. You can withdraw your money at any point tax-free, so long as it is used for qualified medical expenses. Additionally, if you don’t use any of your money in a given year, it rolls over into the next. There is no “use it or lose it” feature. Lastly, its portable, meaning you can take it with you if you leave your employer.