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How Does a Health Savings Account Work?

How Does a Health Savings Account Work?

A Health Savings Account (HSA) allows the owner to save (and invest) money in an account, which can be used to pay for health expenses on a tax advantaged basis.

Generally speaking, your contributions to a HSA are tax deductible, the earnings grow on a tax deferred basis, and you can withdraw the money tax free if used for a qualified health expense. As 2016, you are allowed to contribute $3,350 (for individuals) and $6,750 (for families) to the account, plus an additional $1,000 if you’re over 55.

If you withdraw the money and use it to pay non-health related expenses, you’ll be subject to ordinary income taxes on the monies, plus a 10% penalty if you’re not over 65. In order to open and contribute to an HSA, you must have health coverage that is part of a high-deductible health plan that is HSA eligible.

Who Can Participate in an HSA?
Where Should I Put my Healthcare Savings?
What Should My First Savings Vehicle Be?

Keywords: tax deductible, Health Savings Accounts (HSA), tax deferred,