A Health Savings Account (HSA) allows employees who are enrolled in a qualified High-Deductible Health Plan (HDHP) to put aside money from their gross income into an individual, tax-exempt Trust account. This money can be used to pay for routine medical, dental, and vision expenses or can be accumulated to provide savings for the future. In short, an HSA is like a tax-free savings account for your healthcare expenses that rolls over from year to year.
HSAs not only serve as convenient accounts to use throughout the year to pay for eligible expenses but also provide significant tax advantages. In fact, HSAs provide “triple tax savings” by allowing participants to:
Contribute to an HSA tax-free
Distribute, or withdraw, money from an HSA tax-free (to pay for eligible expenses)
Grow an HSA tax-free by investing HSA money* in a selection of mutual and index funds (*balance must exceed $2,000)
Other Benefits of an HSA
Some of the benefits of an HSA include the following:
HSA funds roll over into subsequent years, so your plan continues to grow as you save money
Typically, HSA-eligible Health Plans have lower health insurance premiums than regular health plans
You own your HSA and choose how to invest the funds
You are eligible to deduct contributions you make on your federal income tax return, even if you do not itemize deductions (California does not permit the deduction)
Interest and other earnings on an HSA maintained in accordance with federal law are not taxable on your federal return
Withdrawals for qualified medical expenses are federally tax-free
Catastrophic protection is provided through the high-deductible health plan
You have the freedom to see any physician you choose
Eligible HSA Expenses
In general, you can use your HSA to purchase medical, dental, and vision products and services related to the prevention, treatment, diagnosis, or mitigation of a disease or illness. These expenses are determined by the IRS and are outlined in publication 502.
Looking for a list of eligible expenses or a way to purchase eligible items online? Click here!
How It Works
If you are enrolled in an HSA-eligible High Deductible Health Plan, you may enroll in an HSA. Unlike an FSA, your HSA is owned by you and goes with you wherever you go, even if you leave your current job. HSA funds do not expire and continue to carry over each year — even into retirement!
Contributions may be made to your HSA by you, your employer, or both. You may contribute to your HSA either through pre-tax payroll deductions, in accordance with the rules set by your employer, or through personal contributions to your account, which are tax-deductible.
Each year, the IRS sets limits for how much can be contributed to an HSA. In 2018, the annual contribution limit for HSAs are as follows:
Individual Coverage: $3,400
Family Coverage: $6,900
Catch-Up Contribution (for HSA participants age 55+): $1,000
Funds are available to be used as they are contributed to your HSA. You may use your HSA money to pay for eligible medical, dental, and vision expenses for you and your covered dependents. There are no network requirements for using HSA funds, so you may choose to see any provider you wish, as long as the expenses incurred at that provider are HSA-eligible.
If you have a balance in your HSA of $2,000 or more, you may choose to invest a portion of your HSA funds in a selection of mutual and index funds (established by the HSA custodian). If you have an HSA with 24HourFlex, you can find a current list of investment options here.
If you use your HSA money to purchase a non-eligible item and you are under the age of 65, you will incur a 20% tax penalty, in addition to pay taxes on the ineligible expense. If you are over the age of 65, however, you may use your HSA money to purchase non-eligible items without incurring a penalty; however, non-eligible expenses will still be considered taxable.
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