what is Health Savings Account (HSA)

A Health Savings Account (HSA) is a tax-advantaged medical savings account in the United States that is available to individuals enrolled in a high-deductible health plan (HDHP). Here's how it works: 1. **Tax Advantages**: Contributions to an HSA are not subject to federal income tax at the time of deposit. This means you can save money on taxes by using pre-tax dollars from your paycheck. 2. **Triple Tax Advantages**: HSAs are considered "triple-tax advantaged" because they offer more tax advantages than retirement accounts like 401(k)s or IRAs. This is because you can use untaxed dollars to pay for qualified medical expenses, and you won't owe taxes when you take money out of the account for these expenses. 3. **Eligibility**: To contribute to an HSA, you must have an HSA-eligible health plan, which is typically a health plan that covers preventive services before the deductible. 4. **Contribution Limits**: The contribution limit for an HSA is $4,300 for individual coverage and $8,550 for family coverage for the year 2025. 5. **Usage**: HSA funds can be used to pay for qualified medical expenses, including copays, prescriptions, dental care, contacts and eyeglasses, bandages, X-rays, and more. The funds can be withdrawn for these expenses tax-free. 6. **Interest and Earnings**: HSA funds may earn interest or other earnings, which are not taxable. 7. **Portability**: Unlike a flexible spending account (FSA), an HSA is not "use-it-or-lose-it" and can be rolled over from one job to another. This means you can take your HSA funds with you when you leave an employer. In summary, an HSA is a powerful tool for saving for medical expenses with significant tax advantages. It's important to note that HSAs are intended to be used for qualified medical expenses and not for other purposes.