A health savings account (HSA) combines high deductible health insurance with a tax-favored savings account. Money in the savings account can help pay the deductible. Once the deductible is met, the insurance starts paying. Money left in the savings account earns interest and is yours to keep.
Contributions to the HSA are 100% deductible (up to the legal limit) — just like an IRA.
Withdrawals to pay qualified medical expenses, including dental and vision, are never taxed.
Interest earnings accumulate tax-deferred, and if used to pay qualified medical expenses, are tax-free.
Unlike a flexible spending account (FSA), unused money in your HSA isn’t forfeited at the end of the year; it continues to grow tax-deferred.
To get the benefits of an HSA, the law requires that the savings account be combined with a qualified high deductible health insurance plan which can cost less than other health insurance plans. In 2021, the minimum annual deductible of a qualified HSA plan for an individual is $1,400 and $2,800 for a family.
A health savings account (HSA) is a tax-favored savings account created for the purpose of paying medical expenses.