A health savings account (HSA) is a common type of healthcare financing offered by employers providing high-deductible health plans. While many employers (and some health insurers) will contribute to an HSA, anyone with a qualifying high-deductible health insurance plan can add to such an account, and individuals can contribute tax free. The tax benefit applies to those getting high-deductible health coverage, whether through an employer or on a health exchange.
The money in a health savings account is reserved for medical costs, including prescriptions and even some medical costs that your insurance does not cover. Some dental services and over-the-counter products are also included. You can use the money in your account to pay for deductibles and co-pays, as well. This savings account continues with you year after year, and you can vary how much you put in it, up to prescribed limits set by the federal government each year. You may also take your HSA with you if you leave your current employer, including funds your current employer has deposited.
The money deposited in your HSA rolls over each year, so if you don’t use all the funds, you can build a nest egg for future medical needs. It is even possible to find a health savings account that is interest bearing—and the interest is tax free. To qualify, you must be under the age of 65 and be insured with a high-deductible health plan.
If you need emergency money, HSA funds can be withdrawn for non-medical expenses before age 65, but you will pay taxes on your withdrawal, as well as a penalty. After age 65, penalties are waived.
Talk to your insurance agent about options for health savings accounts and the possibility of rolling over other taxable investments to provide for health needs tax free.
