HSA Basics
The Health Savings Account – HSA for short – is a special kind of bank account designed to help you build tax-free savings for health care throughout your lifetime. Here’s how …

1. It saves you money on taxes

You, your employer, or anyone else can put money in the account.


• If you contribute at work, money contributed through payroll deductions goes in tax-free, earns interest tax-free, and can be used tax-free for expenses approved by the Internal Revenue Service (IRS).



• If you aren’t employed, you can deduct the amount you put in when you do your taxes.


2. It's portable

The HSA is in your name, just like your personal checking or savings account, so money in your account is yours to keep even if your life situation changes.


• If you change jobs, you can take the money with you – even money your employer adds. As long as you meet the eligibility rules, you can continue to add money to the account. And if you’re no longer eligible to contribute, you can still spend HSA money.



• After you retire, you can spend HSA money tax-free on eligible health care expenses like prescription drugs, doctor’s office visits, and nursing home care.


3. Your account can build over time

As long as your yearly contribution doesn't go over the allowed limit, the money goes in and grows tax-free.


• If you don’t spend all the money you contribute, unused dollars stay in your account. The HSA allows you to build up your health care savings.



• You can even invest the money and earn interest on it, without having to pay taxes on the earnings. (You may have to pay fees, as you do when investing 401(k) dollars.)

Spending HSA money
You can use HSA funds for any purpose, but they are only tax-free when used for IRS-approved items such as out-of-pocket costs specified in your health plan. Eligible expenses include:

• Doctor's office visits
• Dental services
• Eye exams, eyeglasses, contact lenses and solution, and laser surgery
• Hearing aids
• Orthodontia, dental cleanings, and fillings
• Prescription drugs and some over-the-counter items
• Physical therapy, speech therapy, and chiropractic expenses

See the IRS list of medical expenses.


HSA Rules
Sound too good to be true? Well, some rules do apply.

1. You have to enroll in a certain kind of health plan. To contribute to an HSA, you need to have a special kind of plan - the IRS calls it a High Deductible Health Plan.



2. You need to meet other eligibility rules. You cannot have an HSA if ANY of the following is true:



• You are covered by other insurance that pays for medical services, such as coverage under a spouse's plan. This includes medical plans, Flexible Spending Accounts, and Health Reimbursement Arrangements. So if your spouse has a comprehensive FSA (one that covers more than a "limited purpose" like vision and dental) or non-HDHP medical coverage for the entire family, you're not eligible for an HSA – even if the spouse's plan or FSA isn't used for you. Get more information about other coverage.



• You are enrolled for Medicare benefits. Neither you nor your employer can put money in an HSA once you're enrolled in Medicare – but you can spend money you've rolled over from past years.



• You can be claimed as a dependent on another person's tax return. For tax purposes, spouses aren't considered dependents.


3. There’s a limit on how much you can put in the account. In general, the maximum HSA contribution – from you, your employer, and anyone else – can't exceed your deductible or the maximum amount allowed by Uncle Sam… whichever is less. However, if you're age 55 or older, you can put away a little more. Get the details on contribution limits.