A Quick Guide to Health Savings Accounts

Healthcare Savings Accounts (HSA) GuideA Health Savings Account (HSA) makes for an easy way to save and pay for qualified medical expenses now and down the road. Though it’s often confused with a Flexible Savings Account (FSA), a Health Savings Account is not the same. For one thing, the funds roll from year to year and will move with you if you change jobs, become unemployed or change medical coverage.

So What Is An HSA?
It’s a special account that is tax-advantaged and available to individuals who have High Deductible Health Insurance Plans (HDHP).

How Do HSAs Work?
Pre-tax contributions can be made by you, your employer or both, up to an annual contribution limit. As you incur medical and health-related expenses, like insurance co-pays and prescriptions or long-term care services, the funds in your HSA can be used to cover those costs. A complete list of qualifying expenses is available at IRS.gov (Publication 969).

What Are Some of the Other Benefits?
Even if you do not expect to have medical expenses during the year, consider an HSA if you’re eligible. From the moment you open it, even if your balance is zero, any medical expenses you incur will qualify for tax-free reimbursement when the expense happens.

So, say you have nothing in your HSA but you unexpectedly have to go to a doctor and end up with a bill for $75. Just add the funds to your HSA and reimburse yourself so you can get the tax break on that bill.

Also, having an HSA in place now is a great (but unconventional) way to save for expenses that may happen during your retirement, when you are likely to have higher medical costs and less income to pay for them. One of the great benefits of HSAs is that the funds carry forward from year to year and can always be used to pay for qualified health care expenses tax-free.

Do you have experience with an HSA? If so, let us know the pros and cons from your perspective in the comments below.

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