What is an HSA?
A health savings account, or HSA, is an individual savings account to help individuals cover out-of-pocket medical expenses. While HSAs are typically offered through an employer, anyone may open an HSA if he/she is enrolled in a high deductible health plan (HDHP). Per the IRS, HSAs may only be used to purchase qualified eligible items or pay for eligible medical expenses. HSAs never “expire,” as funds roll over year over year. Also, if you leave your place of employment, your HSA is fully portable, and you can retain the account for life. The amount you can save each year depends on if you have coverage for yourself only or you cover other family members too.
Why an HSA?
HSAs help fill the gap between your out-of-pocket expenses and full insurance coverage. If you have a $3,500 deductible, you might have to pay that much with your own funds if you have a hospital or emergency event. You will also pay outright for doctor visits, instead of the customary co-pay amount. Setting aside pre-tax funds in an HSA means that you’ll have that safety net to cover these expenses. And, you never pay payroll taxes on the money during contribution or taxes on it upon disbursement.
You can use this money to pay for your deductible and any out-of-pocket costs. If you don’t use all the money, it stays in your account. Additionally, many people use their HSA as a means of funding medical costs into their retirement by taking advantage of the built-in investment feature and allowing their HSA to grow.
You never forfeit anything in your HSA, and the account is yours if you leave your employer. Some employers even help you pay for your healthcare costs by contributing money to your HSA.
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