What is a Health Savings Account?
Due to rising health care costs, many employers are moving toward high deductible health plans (HDHPs) in attempts to cut overhead costs. However, these HDHPs are often offered in addition to a Health Savings Account.
A Health Savings Account (HSA) is a tax-deferred, private savings account, which allows individuals to pay for current and future medical expenses or preventative expenses with tax-free money.
What you need to know about your HSA
- HSAs have contribution limits set by the IRS
- Like a 401(k), you contribute pre-tax dollars to your HSA and can have a specified amount automatically deducted from your paycheck. You can even put your HSA balance into a variety of investment options.
- Unlike an IRA/401k, you don’t pay taxes on withdrawals from your HSA as long as you are using it to cover qualified medical expenses.
- There are no carryover limits if you carry a balance from year to year.
- If you are no longer enrolled in a HDHP or if you are no longer employed with the company offering the HDHP and HSA, you don’t lose the money in your HSA account. However, you can no longer contribute to that account.
- A HSA is very easy to use. No claims review involved. Just keep your receipts.
Qualified medical expenses allowed for use with your HSA
- Medical expenses
- Weight loss program
- Assistive devices such as crutches, walkers, and wheelchairs
- Insurance premiums
- Home improvements designed for injury prevention/safety
- And many more. A comprehensive list is available at the IRS website, www.irs.gov in IRS publication 502.