Health Savings Accounts (HSAs) provide triple tax advantages: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. HSAs pair with high-deductible health plans and have become increasingly popular in the US.
Eligibility Requirements
To open and contribute to an HSA, you must be covered by an HSA-eligible high-deductible health plan, have no other health coverage (with limited exceptions), not be enrolled in Medicare, and not be claimed as a dependent on someone else's tax return.
Contribution Limits
Annual contribution limits are set by the IRS and adjust for inflation. Limits differ for individual and family coverage. Those 55 and older can make additional catch-up contributions. Both employees and employers can contribute, but combined contributions cannot exceed limits.
Long-term Benefits
Unlike flexible spending accounts, HSA funds roll over indefinitely. This makes them effective retirement savings vehicles for healthcare costs. Invested HSA funds can grow substantially over decades. After 65, withdrawals for any purpose are penalty-free (though taxable if not for medical expenses).