A health savings account (HSA) is a tax-favored savings account that comes with a high-deductible health insurance plan. If you do not have a high-deductible health insurance plan, you do not qualify for a HSA. If you have a high deductible health plan, then by all means, get and use your HSA. It is designed to help you save for medical, dental, or prescription costs that high-deductible health plans do not cover, like a separate bucket of your savings that is solely earmarked for medical expenses.
You contribute to the HSA, up to an annual limit (others, including your employer, can also contribute). These contributions are invested over time. Contributions can be pre-tax or tax-deductible, and the money in your HSA grows tax-free. Then, certain withdrawals are tax-free if used for qualified medical expenses.
Two other pluses: First, the funds in your HSA roll over at the end of the year if you don’t use them, so they can go toward future medical expenses. Also, your HSA goes with you, even if you change jobs, change insurance plans, or retire.
So, if you do have a high-deductible health plan, an HSA can be worth looking into. The IRS establishes guidelines for HSAs and high deductible health plans each year that explain who qualifies to open and contribute to an HSA.
