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A Health Savings Account or HSA is a way to save for health care costs while also reducing your taxable income. HSA contributions are made before your income is taxed, and you don’t pay taxes on the account’s growth. When you make withdrawals for eligible expenses, you don’t pay tax on that money either.

Think of an HSA like a savings product that offers you a way to pay for your health care expenses and save for future qualified medical and retiree health expenses on a tax-free basis. 

Who can have an HSA?

To qualify, you must be under 65 years of age and covered by a High Deductible Health Plan (HDHP). An HDHP generally costs less than what traditional health care coverage costs, so the money that you save on insurance can therefore be put into the Health Savings Account.

You own and control the money in your HSA. Decisions on how to spend the money are made by you without relying on a third party or a health insurer. You will also decide what types of investments to make with the money in the account in order to make it grow. 

Even if your employer contributes to your HSA, it’s your account and the money remains in your account even if you change jobs. Any unused money at the end of the year stays in your account into the next year.

What Is a “High Deductible Health Plan” (HDHP)?

You must have an HDHP if you want to open an HSA. An HDHP is often a less expensive health insurance plan when comparing premiums with other plans.  However, an HDHP generally doesn’t pay for the first several thousand dollars of health care expenses (that's applied to your deductible) but it may cover you after that.

Having money set aside in an HSA helps you pay for the expenses your HDHP doesn't cover. 

Is an HSA right for you?

Putting away money specifically for unknown medical expenses may be a wise choice for you.  Experts say you shouldn't overlook the role of an HSA as a way to save for medical expenses in retirement, as well, when health care expenses tend to rise.

How can I get a Health Savings Account?

If your employer offers an HSA option, you can sign up during open enrollment.

You can open an HSA on your own through your financial institution or online options. If you have a spouse, each of you will have your own HSA accounts.  If your spouse uses your insurance as secondary coverage, he or she must also be enrolled in a high-deductible plan. 

There are annual limits to the amount you can contribute to an HSA set by the IRS.  

How much does an HSA cost?

An HSA is not something you purchase; it’s a savings account into which you can deposit money on a tax-preferred basis. The only product you purchase with an HSA is a High Deductible Health Plan, an insurance plan that covers you should your medical expenses exceed the funds you have in your HSA.


Source:  U.S. Treasury