HSA

Health Savings Account (HSA) and High Deductible Health Plan (HDHP)

A Health Savings Account (HSA) is an account much like an IRA into which you can deposit a limited amount of money without paying any federal income tax on that money. The added bonus is that the unused portion stays in the account year-after-year, accumulating tax-free interest. The money can be used for a wide variety of medical purposes including things not covered by most health insurers. Plus, when you hit 65, you can take money out for non-medical purposes just like an IRA: you do not pay income tax on the distributions. You can even get access to the money before 65 for non-medical purposes by paying a 10% penalty in addition to income tax.

An HSA must be coupled with a High Deductible Health Plan (HDHP), which is likely to be similar to an indemnity or PPO policy with a higher deductible. An HDHP must be HSA qualified—some HDHPs don’t have HSA as part of it, due to some part of the benefit package not qualifying. The HDHP must have a deductible within a certain range.

An HSA/HDHP allows you to spend pre-tax dollars for your out-of-pocket health expenses using either a debit card or a checkbook from the HSA. However, with a few exceptions, this does not include health insurance premiums.