A Health Savings Account is a portable, tax-favored savings account combined with a qualifying high deductible health plan (HDHP) that allows you to fund health care expenses with pre-tax money. Your deposits to a Health Savings Account reduce your taxable income, and withdrawals are never taxed as long as funds are used to pay for qualified medical expenses.
HSAs are similar to IRAs, but even better:
- Pre-tax money is deposited each year into an HSA and can be easily withdrawn at any time with no penalty or taxes to pay for qualified medical expenses. Withdrawals can also be made for non-medical purposes, but will be taxed as normal income and are subject to a 10 percent penalty if done prior to age 65.
- Any HSA funds not used each year remain in the account (no “use it or lose it”), and earn interest tax-free to supplement medical expenses at any time in the future.
- Like an IRA, the account belongs to you, not your employer. But unlike an IRA, your employer CAN contribute to your HSA.
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