A Health Savings Account is an IRA-like account that is designed exclusively for covering qualified medical expenses. Use the Checks or debit card from your account to pay for qualified medical expenses.
How does an HSA work?
An HSA works like an IRA, except the money is used to pay for qualified health care cost. Money deposited to the account is tax deductible and is used to pay for current and future qualified medical expenses. Interest earned is not taxable if used for qualified medical expenses. Unused balance rollover from year to year.
Who can qualify?
Anyone with a high deductible health insurance plan is eligible for an HSA provided they are not covered by another health insurance plan, entitled to Medicare or can't be claimed as a dependent on someone else's tax return.
What are the tax benefits?
- Cash contributions to an HSA are deductible from your federal gross income whether you itemize or not.
- Interest earned is not taxable if used for qualified medical expense.
- Withdrawals from an HSA for qualified medical expenses are free from federal income tax. Non-medical withdrawals are considered taxable income and are subject to a 2% penalty.
What are the Contribution Limits for 2021?
Individual Plan: $3,600
Family Plan: $7,200
*If you are over 55 years old you can contribute an additional $1,000