A Health Savings Account (HSA) is a tax-advantaged savings account designed to help individuals with high-deductible health plans (HDHPs) save money for medical expenses.
Contributions made to an HSA are either tax-deductible or made pre-tax if through an employer, and the funds can be used to pay for a wide range of qualified medical expenses, such as doctor’s visits, prescriptions, dental care, and more.
Here are the key features of an HSA:
Eligibility: You must be enrolled in a high-deductible health plan (HDHP) to open an HSA.
Tax Benefits:
Contributions are tax-deductible.
Earnings from interest or investments grow tax-free.
Withdrawals used for qualified medical expenses are tax-free.
Contribution Limits: The IRS sets annual contribution limits. For 2024, the limits are $4,150 for individuals and $8,300 for families, with an additional catch-up contribution for those aged 55 or older.
Flexibility: The funds in an HSA roll over from year to year, so there’s no “use-it-or-lose-it” rule. The account stays with you even if you change jobs or health insurance plans.
Investment Options: Many HSA providers allow you to invest the funds in mutual funds or other investment options once you reach a certain balance.
Non-Medical Withdrawals: If funds are withdrawn for non-medical expenses before age 65, you will be subject to taxes and a 20% penalty. After age 65, non-medical withdrawals are taxed as regular income but without the penalty.
An HSA can be a powerful tool for saving on healthcare costs and preparing for medical expenses in retirement.
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