What is a Health Saving Account (HSA)?

A Health Savings Account (HSA) is a type of savings account that allows individuals with high-deductible health plans (HDHPs) to save money on a pre-tax or tax-deductible basis to pay for qualified medical expenses. Contributions made to an HSA are not taxed at the time of deposit, and the funds in the account grow tax-free. Withdrawals from an HSA are also tax-free if they are used for eligible medical expenses, such as doctor’s visits, prescription medications, and other health-related costs that are not covered by insurance.

HSAs are unique in that the funds roll over year after year if they are not spent, providing an opportunity to accumulate savings over time which can be used for future healthcare needs. Additionally, HSAs can be invested in a similar way to retirement accounts, which can potentially increase the account's value through investment returns.

To be eligible for an HSA, an individual must be enrolled in a high-deductible health plan. There are annual limits to how much one can contribute to an HSA, and these limits are typically adjusted each year for inflation. HSAs offer several benefits, including helping individuals manage healthcare costs more effectively by providing a tax-advantaged way to save and pay for their healthcare expenses.

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