A health savings account, or 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). The funds contributed to the account are not subject to federal income tax at the time of the deposit. Unlike a flexible spending account (FSA), funds roll over and accumulate year after year if not spent. HSAs are owned by the individual, which differentiate them from the company-owned Health Reimbursement Arrangement (HRA) that is an alternate tax-deductible source of funds paired with HDHPs. Funds may be used to pay for qualified medical expenses at any time without federal tax liability. Withdrawals for non-medical expenses are treated very similarly to those in an IRA in that they may provide tax advantages if taken after retirement age, and they incur penalties if taken earlier. These accounts are one component of consumer driven healthcare.
Interactive HSA Presentation
Click the picture below to see an interactive demonstration on how HSA’s work.