A health savings account (HSA) is a type of tax-advantaged savings account that is designed to help individuals with high-deductible health plans (HDHPs) pay for out-of-pocket medical expenses. HSAs offer a way for individuals to save money on a pre-tax basis to pay for healthcare expenses, and any unused funds can be carried over to future years.
Here are some key features of HSAs:
Eligibility: To be eligible for an HSA, you must be enrolled in a high-deductible health plan (HDHP). For 2022, the IRS defines an HDHP as a plan with a minimum deductible of $1,400 for an individual and $2,800 for a family.
Contribution Limits: For 2022, the annual contribution limit for an individual is $3,650, and for a family, it is $7,300. Individuals age 55 and older can make an additional catch-up contribution of up to $1,000.
Tax Benefits: HSA contributions are tax-deductible, which means they can reduce your taxable income. Additionally, any interest or investment earnings on your HSA balance are tax-free, and withdrawals for qualified medical expenses are also tax-free.
Qualified Expenses: Qualified medical expenses that can be paid for using HSA funds include deductibles, copayments, prescription drugs, and other medical expenses not covered by insurance.
Portability: HSAs are owned by the individual, which means that they are portable and can be carried over from job to job and into retirement.
Investment Options: Many HSAs offer investment options, which means that individuals can invest their HSA funds in stocks, bonds, mutual funds, and other investment vehicles to potentially grow their account balance.
HSAs can be a great tool for individuals with high-deductible health plans to save money on a pre-tax basis to pay for medical expenses. By taking advantage of the tax benefits of an HSA and making smart investment choices, individuals can potentially grow their HSA balance over time and use those funds to pay for healthcare expenses in the future.