Health Savings Account

A Health Savings Account (HSA) is a tax-advantaged savings account used for current and future medical expenses. Congress created the HSA to help offset the growing cost of health care. Coupled with the ever-growing number of high-deductible health plans, HSAs offer more control over choices and costs while saving for future health expenses. HSA is an individual account that is controlled by the account holder. It has the tax advantages of being able to distribute money tax-free for qualified medical expenses. The cash and assets stay in the account and grow until distribution by the tax holder. This is how the HSA differs from a Flexible Spending Account. Those assets are held in a ‘use it or lose it’ account. The FSA is not able to be kept if changing employers. The HSA, once established, is controlled by the account holder regardless of changing employers or health coverage. Despite having been around for over ten years, HSAs are not commonly used as a method of saving for retirement, even though they have incredible tax benefits. The projected cost of post-retirement health care for someone retiring now exceeds $250,000. An investment vehicle with the potential for high returns coupled with tax-free distributions for qualified medical expenses is a valuable tool. It is important to know not only the advantages of HSA, but also its limitations or rules. You only qualify to contribute to the HSA if you are currently enrolled in a high deductible health insurance plan. You also cannot benefit from an additional health plan that is not HSA-eligible, such as a spouse's plan. If you enroll in Medicare, you can no longer contribute. Health Savings Accounts do have a contribution limit per year. Currently, the limit for an individual plan is $3,300 and $6,550 for family plans. There is a $1,000 catch-up contribution limit for those aged 55 and older. Anyone can contribute to your HSA, as long as the limit is not surpassed. When you die, your HSA funds can be used by your spouse or it can be taxed and passed on to your non-spouse beneficiaries.