A Health Savings Account (HSA) can save you money on medical expenses such as doctor’s visits, prescriptions, and other qualified medical expenses.
The money you put into an HSA is not subject to federal taxes, the withdrawals are tax-free, AND the interest and capital gains on your investments are tax-free. That’s a triple tax benefit!
The account balance is your own personal money and carries over from year to year if you don’t use it. This is a “portable” account so it stays with you even if you change employers.
How does this work?
HSAs are regulated by the IRS so there are certain rules you must follow. There are contribution limits as well as eligibility requirements. To qualify for an HSA you must be enrolled in a high-deductible health insurance plan (HDHP). The IRS defines what type of plan is considered an HDHP each year. For 2021, the IRS defines a high deductible health plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family.
There are yearly limits for deposits into an HSA. These limits for 2021 are:
- Family Contribution Limit: $7,200
- Self-Only Contribution Limit: $3,600
- If you are age 55 or older at the end of your tax year you can contribute an additional $1,000
How do I start?
Once you determine that you qualify, you can start your HSA plan. Your employer may offer a high-deductible health plan and an HSA plan through your workplace. If your employer doesn’t provide one, you can search for an HSA provider.
Once you open your plan, you will decide each year how much you want to contribute to your plan (within the contribution limit). Many workplaces will allow you to set this up as a deduction from your payroll making it easy to participate.
Using HSA Funds
You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. You will typically receive a debit card or checks connected to your HSA so that you can use the funds on eligible expenses. You can use HSA funds to pay for deductibles, copayments, coinsurance, and other qualified medical expenses. Withdrawals to pay eligible medical expenses are tax-free.
By using pre-tax dollars in an HSA to pay for deductibles, copayments, coinsurance, and other qualified expenses, including some dental, drug, and vision expenses, you can lower your overall health care costs.