Health Savings Account (HSA)
What Is a Health Savings Account (HSA)?
A Health Savings Account (HSA) is a tax-advantaged savings account used to pay for qualified medical expenses. HSAs are available to individuals enrolled in a High-Deductible Health Plan (HDHP).
Funds in an HSA can be used for healthcare costs such as doctor visits, prescriptions, and medical treatments.
Why It Matters
HSAs offer several tax advantages that can help individuals manage healthcare expenses more efficiently. Contributions are typically tax-deductible, account growth may be tax-free, and withdrawals for qualified medical expenses are not taxed.
This combination of tax benefits makes HSAs a valuable tool for long-term healthcare planning.
How a Health Savings Account Works
Individuals contribute money to their HSA each year up to IRS contribution limits.
Key features include:
- tax-deductible contributions
- tax-free growth on savings or investments
- tax-free withdrawals for qualified medical expenses
Unlike FSAs, HSA funds roll over each year and remain with the account holder even if they change jobs.
Example
A worker enrolled in an HDHP may contribute money to an HSA and use those funds to pay for medical bills throughout the year.
HSA vs Flexible Spending Account
- HSAs are individually owned accounts that allow funds to roll over indefinitely.
- FSAs are employer-sponsored accounts with annual usage rules.
FAQs About Health Savings Accounts
Who qualifies for an HSA?
Individuals enrolled in a High-Deductible Health Plan.
Do HSA funds expire?
No. Funds roll over each year and remain in the account.
Can HSA funds be invested?
Yes. Many HSA providers allow investments once a balance threshold is reached.
Related Terms
- High-Deductible Health Plan
- Flexible Spending Account
- Healthcare Costs
- Medical Expenses
- Out-of-Pocket Maximum
- Health Savings Account (HSA) Day
