Health Savings Account (HSA)
A health savings account (HSA) is an interest-bearing checking account, savings account, or investment account established exclusively to pay the medical expenses of the account owner, spouse or dependents. Health insurance coverage must be provided under a qualifying high-deductible health plan. HSA Plans can be individual plans or group medical plans.
How it Works:
- The account owner makes tax-deductible contributions to his or her HSA account. His or her employee may make non-taxable contributions as well. Money from the account used for "qualified" medical expenses are received income tax-free.
- "Qualified" medical expenses generally follow the definition used for deductibility as an itemized deduction on form 1040, Schedule A.
- Contributions to the HSA are 100% tax deductible from your gross income and are currently not taxable prior to distribution.
- The interest growth within the account is taxed deferred.
- Funds from your HSA are tax-free if used for covered services under your health plan.
- If the account owner changes employers, the HSA moves with him or her, even if the employer contributed to the account.
- If funds remain in the HSA after death, funds may be paid to the beneficiary tax-free.