Health Savings Account (HSA)

A Health Savings Account (HSA) is a type of savings account that allows individuals to set aside money on a pre-tax basis to pay for qualified medical expenses. HSAs are typically offered in conjunction with high-deductible health plans (HDHPs), and are designed to help individuals save money on health care expenses while also providing tax benefits.

Here are some key features of an HSA:

• Pre-tax contributions: Contributions to an HSA are made on a pre-tax basis, which means that the money is not subject to federal income tax.

• Tax-free withdrawals: Withdrawals from an HSA are tax-free as long as they are used to pay for qualified medical expenses.

• High-deductible health plan (HDHP) required: In order to contribute to an HSA, an individual must be covered by a high-deductible health plan (HDHP).

• Portable: HSAs are portable, which means that the account can be transferred from one employer to another, or from one individual to another.

• Savings account: An HSA is essentially a savings account, and the funds in the account can earn interest or be invested in mutual funds or other investment vehicles.

Example:

An example of an HSA is a plan in which an individual contributes $3,000 per year to an HSA account. The individual is covered by a high-deductible health plan (HDHP) with a deductible of $2,000. The HSA funds can be used to pay for qualified medical expenses, such as doctor visits, prescription drugs, and medical procedures. The HSA account earns interest, and the funds can be invested in mutual funds or other investment vehicles. Any money left in the account at the end of the year rolls over to the next year. If the individual changes employers or health plans, the HSA account can be transferred to the new employer or individual.