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Understanding Health Savings Accounts (HSAs) Series: Part One



A Health Savings Account (HSA) is a tax-advantaged account you can use to pay for qualified medical expenses (QMEs) for you, your spouse, and qualified dependents at any time- now or in the future. An HSA works together with an HSA-qualified high deductible health plan (HDHP) which has lower monthly premiums, allowing you to have more control over your healthcare spending. You can put the money saved on the HDHP premiums in your HSA to cover you qualified medical expenses.


What are the advantages of an HSA?


Triple tax-free benefit- No other type of account offers these 3 tax advantages together.

  • Tax deductible contributions- All HSA contributions reduce your annual taxable income by the amount you contribute.

  • Tax-fee earnings- Your HSA balance is yours to keep and can be invested over time once your balance reaches a minimum (usually $1000 or $2000), as determined by your employer or the health plan. Any earnings on your HSA balance grow tax free.

  • Tax-free withdrawals- Any withdrawals for QMEs are tax free.


Flexibility- You can spend your HSA balance now on current out-of-pocket medical costs for you, your spouse, and your dependents. You can also save it to help pay for QMEs in retirement.


Portability- Your HSA is portable. The account belongs to you, just as an individual retirement account belongs to you. Once you open an HSA, you can take it with your whether you change jobs, switch health plans, or retire.


Control- Owning an HSA lets you decide how to save and pay for QMEs. You can even use it to help cover your health plan deductible and out-of-pocket medical expenses such as over the counter medications.




Next in the series- Who can contribute to an HSA?


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