A health savings account (HSA) is a savings account that lets you save pre-tax money to pay for qualified medical expenses. These expenses include deductibles, copayments, coinsurance, prescriptions and more.

HSA Tax Advantages

An HSA account gives account owners three tax advantage because:

1. Contributions reduce taxable income.
2. The money isn't taxed while it’s in the account, even as it earns interest.
3. You won't owe taxes when you spend HSA money on qualified medical expenses.

By using pre-tax HSA dollars, you may be able to lower your overall health care costs.

Who can open an HSA account?

Only people enrolled in high deductible health plans (HDHPs) can open an HSA. As a result, you can’t open an HSA if you’re uninsured, if you have a non-HDHP health insurance plan, or if you have a general-purpose flexible spending account (FSA).

What is a high deductible health plan (HDHP)?

An HDHP is a health plan with a minimum deductible (in 2023) of $1,500 for individuals or $3,000 for families. HDHP monthly premiums are usually lower, but you pay more out of pocket for health care costs before your insurance company starts to pay its share.

How does an HSA work?

After you enroll in a qualifying HDHP, you can research HSA providers and open an HSA separately from the HDHP. Once the HSA account is open, you can make contributions by:

• Payroll deduction (if offered by your employer)
• Electronic transfer from a checking or savings account
• Check

If you don't need to spend your HSA contributions right away, you can invest the money until you need it. And, if you don’t spend all your contributions by the end of the year, they carry over to the next year.

Which is better, an HSA or an FSA?

Both are great options for saving money to pay for qualified medical expenses. The choice of HSA vs. FSA will depend on your financial situation plus your and your family's health. The main differences to keep in mind are:

• HSAs may offer higher contribution limits, your funds can carry over from one year to the next, and you can invest unused HSA funds until you need to spend them.
• FSAs may have lower contribution limits, you can't carry over funds (for the most part) to the next year, and FSA funds can’t be invested.

Can I use an HSA if I have Medicare?

That depends:

• If you already have an HSA and then you enroll in Medicare, you can no longer contribute to the HSA, but you can keep the HSA and continue to withdraw money for qualified health care expenses.
• If you’re already enrolled in Medicare, you’re not eligible for an HSA.