A Health Savings Account (HSA) is a type of personal savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP) . The funds contributed to an HSA are not subject to federal income tax at the time of deposit, and they can be used to pay for qualified medical expenses at any time without federal tax liability or penalty. Unlike a flexible spending account (FSA), HSA funds roll over and accumulate year to year if they are not spent. HSAs are owned by the individual, which differentiates them from company-owned Health Reimbursement Arrangements (HRA) that are an alternate tax-deductible source of funds paired with either high-deductible health plans or standard health plans.
To be eligible to contribute to an HSA, an individual must be covered by an HSA-eligible plan, which is generally a health plan that only covers preventive services before the deductible. HSA funds generally may not be used to pay premiums. Banks, credit unions, and other financial institutions offer HSAs.
HSAs have potential financial benefits for now and later. Not only can you save pre-tax dollars in this account to pay for qualified medical expenses, but HSAs can also provide valuable retirement benefits.
