Discover the benefits of a Health Savings Account (HSA).
A Health Savings Account (HSA) is a tax-advantaged savings account designed to help individuals with high-deductible health plans (HDHPs) save for qualified medical expenses. Here are key features and information about HSAs:
1. Tax Advantages:
- Contributions to an HSA are tax-deductible, providing a reduction in your taxable income.
- Interest and investment earnings on the HSA funds are tax-free.
- Withdrawals for qualified medical expenses are tax-free.
- To open and contribute to an HSA, you must be covered by a High-Deductible Health Plan (HDHP).
- You cannot be enrolled in Medicare.
- You cannot be claimed as a dependent on someone else’s tax return.
3. Contribution Limits:
- Contribution limits are set annually by the IRS. These limits consider individual and family coverage.
- Individuals aged 55 and older can make additional catch-up contributions.
4. Qualified Medical Expenses:
- HSAs can be used to pay for a wide range of qualified medical expenses, including deductibles, co-payments, prescription medications, and certain preventive care.
- HSAs are portable, meaning the account stays with you even if you change employers or health plans.
- Funds roll over from year to year and accumulate over time, allowing for long-term savings.
6. Investment Opportunities:
- Many HSA providers offer investment options, allowing you to grow your HSA funds through stocks, bonds, or mutual funds.
7. Penalty for Non-Qualified Withdrawals:
- Withdrawals for non-qualified medical expenses before age 65 may be subject to a 20% penalty, in addition to regular income tax.
8. Easy Access:
- Accessing HSA funds is typically convenient, with options like a debit card, checks, or online transfers.
- It’s important to keep detailed records of medical expenses and HSA transactions to verify proper use of the funds.
Before opening an HSA, it’s advisable to carefully review the terms and conditions of the specific plan, including fees, investment options, and any restrictions imposed by the provider. Consulting with a financial advisor or tax professional can also help ensure you make the most of the tax benefits and savings opportunities associated with an HSA.