What is a Health Savings Account?
A health savings account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP). "To further qualify, one must not be covered by other non-HDHP health insurance, must not be enrolled in Medicare, and can’t be claimed as a dependent on someone else’s tax return."The funds contributed to an account are not subject to federal income tax at the time of deposit. You can use your HSA to pay for a variety of medical expenses, as long as they are on the approved list determined by the IRS. Distributions made for non-medical purposes are subject to income tax and a 20% penalty prior to age 65.
When you, your employer or anyone else makes a deposit into your health savings account, it stays there forever. There is no "use it or lose it" rule, even if you move off the high-deductible health plan in the future. If you are a healthy individual or family, most likely you won’t use all the funds in your HSA each year. You can use your HSA to pay for the qualified medical expenses of anyone you claim on your taxes, even if you're only enrolled with single coverage. This is a great way to plan for unexpected medical expenses for the whole family. It's also a good way to save a bucket of money for retirement. Plus, any money you keep in your account has the potential to earn interest.
After you retire, your health savings account (HSA) can still work hard for you. The benefits of an HSA in retirement includes paying for qualified medical and nonmedical expenses.
Information in this material is for general information only and not intended as investment, tax or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision. Investing involves risk; including loss of principal.
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