What Is a Health Savings Account (HSA)?

Health Savings Accounts (HSAs) are a flexible, tax-advantaged way to save and pay for healthcare expenses. For individuals and families with high-deductible health plans, HSAs can be an essential part of managing healthcare costs and planning for future needs. They work like a personal bank account – you put in money tax-free, it grows without getting taxed and you can use it on eligible health costs. Plus, any remaining balances in your account roll over and continue to grow tax free year after year.

What is an HSA used for?

HSA funds can be used to pay for a variety of medical expenses that your health insurance might not cover. These include:

• Dental services 
• Vision care 
• Prescription medications
• Over-the-counter medications with a doctor's prescription

These funds can be used to pay for these expenses for you, your spouse and your dependents. With an HSA, you not only decide which qualified expenses will be paid but how they'll be paid and when.

Who can contribute to an HSA?

Eligible individuals, including their employers, may contribute to an HSA. To open and contribute to an HSA, you need to meet the following requirements:

• You're covered under a qualified high-deductible health plan (HDHP). 
• You're not covered by another health plan that isn't a HDHP. 
• You're not enrolled for Medicare benefits. 
• You're not eligible to be claimed as a dependent on another individual’s tax return. 
• You have HDHP coverage on the first day of the month in which the account is opened. 

To learn more about HSA contributions and the current IRS contribution limits, visit our Health Savings Account page.

What are the tax advantages?

HSAs come with some appealing tax advantages: 

• Tax-deductible contributions: If you’re adding to your HSA through your employer’s payroll, those contributions are pre-tax. Making contributions on your own? You can deduct them on your federal income tax return.
• Tax-free growth: The money in your HSA grows without being taxed, which includes any interest or earnings.
• Tax-free withdrawals: When you use your HSA money for qualified medical expenses, you won’t pay taxes on those withdrawals.

Are there long-term benefits?

HSAs aren't just for covering current medical expenses — they can also be a valuable tool for long-term financial planning. Unlike Flexible Spending Accounts (FSAs), HSA funds roll over year-to-year and aren't subject to the "use it or lose it" policy. This allows you to grow your funds over time.

After the age of 65, you can start using these funds for non-medical expenses without the 20% penalty that applies to younger individuals using funds for non-qualified expenses. However, these withdrawals are treated like regular income for tax purposes.

How can I get started?

If you’re interested in opening a Health Savings Account, talk to your benefits plan administrator or insurance professional to make sure you’re eligible. Then reach out to your advisor to open an account and set up your contributions. Don’t have a financial advisor? Connect with one today.