This article provides information for educational purposes. NerdWallet does not offer advisory or brokerage services, nor does it recommend specific investments, including stocks, securities or cryptocurrencies. If you have a high-deductible health insurance plan, a health savings account can help you pay your medical bills.
But HSAs have hidden superpowers that make them a great way for some people to create a tax-free pot of money for retirement or other long-term goals. In the right circumstances, you can even use an HSA to help your young adult children start saving for their futures.
Not everyone is a good candidate for a high-deductible health insurance policy, however. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Your Money. Personal Finance. Your Practice.
Popular Courses. Insurance Health Insurance. Part Of. Types of Accounts. How The Accounts Differ. All About Flex Spending Accounts. All About Health Savings Accounts. Tax Considerations. Contributions to HSAs aren't subject to federal income tax, and the earnings in the account grow tax-free. Unspent money in an HSA rolls over at the end of the year, so it's available for future health expenses.
High-deductible health plans, which are a requirement for HSAs, aren't always the best option, especially for those who expect to have significant healthcare expenses in the future.
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HSA Application. Log In. Health and benefit accounts. Home Learn Benefits Experience. Connect with us. Home Learn Benefits Fair. Is an HSA right for me? Learn more about an HDHP When you pair an HSA with your HDHP, the savings you experience with lower premiums can be banked in your account and put toward out-of-pocket expenses like deductibles, copayments, prescriptions and more.
Plan ahead and set goals If you decide to take advantage of the lower premium that comes with an HDHP, you may wonder how much to contribute to an HSA so that you can cover the deductible and other out-of-pocket expenses. Here are a few suggestions that can help you select a monthly contribution amount that could work with your needs: Consider contributing enough to pay your plan deductible.
And even if you itemize, you can only deduct medical expenses that are in excess of 7. You can continue to use your HSA funds for medical expenses, avoiding taxes altogether on the withdrawals.
This is similar to how a traditional IRA works in terms of taxes. Note that with a traditional IRA, you can start to withdraw money penalty-free at age If you want to leave it in the account to continue to grow, you can do that. Although you can think of your HSA as a backup retirement account, there is no income limit — on the low end or the high end — for deducting HSA contributions.
HSA funds can be kept in basic interest-bearing accounts — similar to a regular savings account at a bank or credit union — or, if you choose an HSA custodian that offers it, you can invest your HSA funds in stocks, bonds, or mutual funds.
The account will likely only generate small amounts of interest, but it will also be protected from losses. Pay attention to fees, investment options, and expense ratios, as is always the case with investment accounts. And HSA contributions made via payroll deduction are typically free of income tax and payroll tax. The IRS considers this a transfer, instead of a rollover, so there are no limits on how often you can do this.
Ready to try out a Health Savings Account? If you have an HSA through your employer, the money in the account is yours. When you leave your job, you get to take the remaining HSA balance with you.
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