Health Savings Accounts (HSA) can be used by individuals covered by a high-deductible health plan to save for health care costs on a tax-free basis, in an account that is similar to that of an individual retirement account (IRA).The HSA provides for a tax-sheltered account that can be used for paying routine medical expenses. In order to contribute, you may not be enrolled in Medicare part A or B, and you must not be a dependent of another taxpayer.

Deposits to this type of account can either be made on an individual basis or through an employer; despite the method of depost, health insurance premiums are lower for those contributing into an HSA. Contributions to an HSA plan may also be federally tax-deductible, depending on your filing situation.

Distributions from an HSA used exclusively to pay or reimburse qualified medical expenses of the account owner, his or her spouse, or dependents are not taxable. Distributions used for anything other than qualified medical expenses are taxable and subject to a 10% penalty. The penalty does not apply for distributions due to disability, reaching age 65, or death. Although customer satisfaction polls have varied, many HSA customers prefer such a system over traditional health benefit plans. (Having trouble sorting through your prescription drug coverage options? check out Getting Through The Medicare Part D Maze.)

The question was answered by Steven Merkel

  1. Who can make catch-up contributions to a Health Savings Account (HSA)?

    Learn about health savings accounts and who can make additional catch-up contributions to HSAs according to the U.S. Internal ... Read Answer >>
  2. What are catch-up contributions for Health Savings Accounts (HSAs)?

    Learn about Health Savings Accounts (HSAs) and how an eligible individual of age 55 or older can make additional catch-up ... Read Answer >>
Related Articles
  1. Financial Advisor

    IRS Sets 2016 HSA Deduction Limits

    Contribution limits for HSA plans have increased slightly for 2016. Here's a breakdown of what they are and how they work.
  2. Insurance

    Fighting The High Costs Of Healthcare

    If your employer is cutting medical benefits, a health savings account may be right for you.
  3. Financial Advisor

    Why HSAs May Trump 401(k)s for Retirement Savings

    In many cases, it makes a lot of financial sense to use a health savings account instead of a 401(k) plan to tuck money away for retirement. Here's why.
  4. Retirement

    Don't Use Your HSA for Current Medical Expenses

    HSAs let people with high-deductible health plans pay out-of-pocket medical costs with tax-free money. But not using those funds may be a better idea.
  5. Insurance

    HSA Contribution Limits in 2016

    Find out the 2016 contribution and out-of-pocket limits for health savings accounts and why HSAs are still viable options as health care plans.
  6. Retirement

    Your HSA: A Triple Threat Investment Tool

    Thanks to its unique tax advantages, a Health Savings Account may be the best retirement option you never knew you had.
  7. Retirement

    Can You Have an HSA If You Get Medicare?

    The answer is usually no, but there are exceptions. You just have to know the rules to avoid penalties.
  8. Retirement

    7 Tips for the Best Health Savings Account (HSA)

    You want the best health savings account you can find to cover your healthcare costs. Here are tips to help you locate one.
  9. Insurance

    Pros And Cons Of A Health Savings Account

    A health savings account offers a way to save while paying for healthcare expenses.
  10. Insurance

    High-Income Benefits From A Health Savings Account

    Health savings accounts are the only tax break offering triple benefits. Here's a look at how they work.
  1. HSA Custodian

    Any bank, credit union, insurance company, brokerage or other ...
  2. Health Savings Account - HSA

    An account created for individuals who are covered under high-deductible ...
  3. High-Deductible Health Plan - HDHP

    A health insurance plan with a high minimum deductible that that ...
  4. Medical Savings Account - MSA

    A medical plan combining high-deductible medical insurance protection ...
  5. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...
  6. Commercial Health Insurance

    A type of health insurance that covers medical expenses and disability ...
Hot Definitions
  1. Racketeering

    A fraudulent service built to serve a problem that wouldn't otherwise exist without the influence of the enterprise offering ...
  2. Federal Debt

    The total amount of money that the United States federal government owes to creditors. The government's creditors include ...
  3. Passive Management

    A style of management associated with mutual and exchange-traded funds (ETF) where a fund's portfolio mirrors a market index. ...
  4. Series 7

    A general securities registered representative license administered by the Financial Industry Regulatory Authority (FINRA) ...
  5. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  6. Expatriation Tax

    An expatriation tax is a tax on someone who renounces their citizenship. In the United States, the expatriation tax provisions ...
Trading Center