Health Savings Account (HSA)
IntermediateA Health Savings Account (HSA) is a tax-advantaged savings account in the United States, available to people with a high-deductible health insurance plan, used to pay for qualified medical expenses.
HSAs offer three tax advantages. Contributions are tax-deductible or made from pre-tax pay. Money grows tax-free. Withdrawals for qualified medical expenses are also tax-free. This combination is often described as a triple tax advantage.
To contribute, a person must be covered by a high-deductible health plan that meets federal requirements, and contributions are subject to annual limits. Unlike flexible spending accounts, unused money rolls over from year to year and belongs to the account holder, even if they change jobs.
For example, someone might contribute to an HSA each year, invest the balance in funds and let it grow for decades, using it to pay medical costs in retirement.
Withdrawals for non-medical purposes before age 65 face income tax and a penalty. After 65, money can be withdrawn for any purpose without penalty, but non-medical withdrawals are taxed as income, similar to a traditional retirement account. Because of these features, some people use HSAs as an additional retirement savings vehicle, while paying current medical costs from other funds.
For worked examples and full lessons, visit notesbysara.org.