A Health Savings Account (HSA) is a tax-advantaged savings account designed to help individuals with high-deductible health plans (HDHPs) save money for qualified medical expenses. HSAs offer a triple tax benefit: contributions are tax-deductible, earnings are tax-free, and withdrawals for qualified medical expenses are also tax-free.

Key features of Health Savings Accounts (HSAs) include:

1. **Eligibility Requirements:**
– Individuals must be covered by a high-deductible health plan (HDHP) to qualify for an HSA.
– They cannot be covered by other health insurance that is not an HDHP, and they cannot be enrolled in Medicare.
– They cannot be claimed as a dependent on someone else’s tax return.

2. **Contribution Limits:**
– The IRS sets annual contribution limits for HSAs. The limits are updated annually.
– Contributions can be made by the account holder, their employer, or both, up to the annual limit.

3. **Tax Deductibility:**
– HSA contributions are tax-deductible, meaning they can be deducted from the individual’s taxable income for the year.
– Contributions made by an employer are also excluded from the employee’s gross income.

4. **Tax-Free Earnings:**
– Any interest or investment earnings on funds within the HSA are tax-free.

5. **Tax-Free Withdrawals for Qualified Expenses:**
– Withdrawals from the HSA are tax-free if used for qualified medical expenses. These can include a wide range of healthcare costs, such as deductibles, copayments, prescription medications, and certain preventive care services.

6. **Portable and Rollover:**
– HSAs are portable, meaning the account is owned by the individual, and they can keep it even if they change jobs or health plans.
– Unused funds in an HSA can be rolled over from year to year, unlike some other types of accounts with “use it or lose it” rules.

7. **Investment Options:**
– Some HSAs offer investment options, allowing individuals to invest their HSA funds in stocks, bonds, or mutual funds to potentially grow their savings over time.

8. **Age 65 and Older:**
– Once an account holder reaches the age of 65, they can make withdrawals for non-medical expenses without a penalty. However, withdrawals for non-medical purposes are subject to income tax, similar to withdrawals from a traditional IRA.

9. **Funding Flexibility:**
– HSAs can be funded by individuals, employers, or a combination of both. Individuals can contribute to their HSA even if their employer does not contribute.

HSAs provide a valuable tool for individuals to save for current and future healthcare expenses while enjoying significant tax benefits. It’s important for individuals with HSAs to understand the rules and regulations governing contributions, withdrawals, and eligible expenses to make the most of this financial tool.