A Health Savings Account (HSA) can be a valuable way to save for healthcare expenses while taking advantage of several tax benefits. If you're eligible to contribute to an HSA, the account can help you pay for qualified medical expenses now or save money for future healthcare needs.
Benefits of an HSA
- Potential tax deductions on contributions. Contributions you make to your HSA may be tax deductible, even if you do not itemize deductions on your federal tax return. Contributions made by someone other than your employer may also qualify for a deduction.
- Tax-free employer contributions. Contributions your employer makes to your HSA are generally not included in your taxable income. This may include contributions made through a cafeteria plan.
- Funds roll over from year to year. Unlike some healthcare spending accounts, unused HSA funds do not expire at the end of the year. The balance remains in your account until you need it.
- Tax-free growth. Interest, investment earnings, and other growth within your HSA are generally not subject to federal income tax while the funds remain in the account.
- Tax-free distributions for qualified medical expenses. Withdrawals used to pay qualified medical expenses are generally tax free, making an HSA an effective way to manage healthcare costs.
- Portability. Your HSA belongs to you, not your employer. If you change jobs, retire, or move to another eligible health plan, you can keep your account and the money in it.
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