Introduction
Health savings accounts (HSA) are a popular type of tax-advantaged savings account that can be used to pay for out-of-pocket medical expenses. Individuals must meet certain eligibility criteria to contribute to an HSA (or have contributions made on their behalf), including a requirement that they be covered by a high deductible health plan (HDHP).
HDHPs and HSAs are an attractive benefit options for a variety of reasons, including the following:
- No federal income tax—HSA contributions are nontaxable, interest on HSA funds accumulates tax-free, and individuals are not taxed on amounts withdrawn for qualified medical expenses.
- No deadline for using funds—HSA money does not expire and unused funds are never forfeited. Money stays in an individual’s HSA until they use it.
- Individually owned—Because HSAs are personal accounts, an individual keeps their HSA even if they change jobs or retire. Also, individuals are responsible for deciding when and how to use
their HSA funds and keeping their own records. - Management of health care spending—HDHPs tend to have lower monthly premiums, which can help reduce health care spending. Even though HDHPs have higher deductibles, preventive care is 100% covered and HSA funds can be used to pay out-of-pocket medical expenses until the HDHP deductible is met.
Although individuals are primarily responsible for managing their own HSAs, employers that sponsor HDHPs often have questions on HSA topics. These frequently asked questions (FAQs) on HSAs are intended to provide answers to those questions.
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