A health savings account (HSA) is a savings account that can be used to save money for medical expenses. It is only available to people who have a certain type of health insurance called a high-deductible health plan (HDHP).
Here’s how an HSA works: you can put money into the account before taxes are taken out. This means you can lower your taxable income by the amount you contribute. The money in the account can be used to pay for things like deductibles, copayments, and prescriptions. You can also use it for other medical expenses that your insurance may not cover, such as dental or vision care.
One great thing about an HSA is that the money in the account can be invested and grow tax-free. Plus, any money that is not used in one year can be carried over to the next year, so you can continue to build up your savings over time.
There are some limits to how much you can contribute to an HSA each year. In 2023, the maximum amount you can contribute to an individual HSA is $3,750, and for a family HSA, it’s $7,500. If you’re over 55 years old, you can make an extra contribution of $1,000 per year.
Advantages of a Health Savings Account (HSA)
Using an HSA can also provide some tax benefits. When you contribute money to an HSA, you can deduct it from your taxes, which can lower your taxable income. And when you take money out of the account to pay for eligible medical expenses, you don’t have to pay taxes on that money.
To use an HSA, you must have a high-deductible health plan (HDHP). This type of health insurance has lower monthly premiums, but you have to pay more out-of-pocket for your medical expenses before your insurance starts to cover the costs. The deductible for an HDHP must be at least $1,400 for individuals and $2,800 for families in 2023.
Even though you have to pay more out-of-pocket for your medical expenses with an HDHP, many preventive services like check-ups and screenings are covered by your insurance before you meet your deductible.
It’s important to keep track of your expenses when using an HSA. It is important to save all your receipts for medical expenses. A taxpayer needs to prove that the money taken out of the account is being used for eligible medical expenses. If you take money out of the account for something that’s not a medical expense, you’ll have to pay income tax on that money, plus a 20% penalty.
Conclusion on HSA accounts
Using an HSA can be a good way to save money on your medical expenses in the long-term. Because you can carry over any unused money from year to year, you can build up your savings over time. The money in the account grows tax-free. So, you can potentially earn more money than you would in a regular savings account.
When you turn 65, you can start using the money in your HSA for any purpose without penalty. However, you’ll still have to pay income tax on any money that you take out of the account for non-medical expenses.
In conclusion, an HSA is a savings account that can help you save money for medical expenses. You can only use it if you have a high-deductible health plan (HDHP). Using an HSA can provide some tax benefits and potentially help you save money in the long-term. Just remember to keep track of your expenses. and only use the money in the account for eligible medical expenses.