Health Savings Account (HSA)

A Health Savings Account (HSA) is a tax-advantaged Savings Account designed for individuals to save and pay for qualified medical expenses. HSAs are available to individuals enrolled in high-deductible health plans (HDHPs). Contributions to the account are made pre-tax, which lowers Taxable Income, and funds can be withdrawn tax-free for eligible medical costs. HSAs can accumulate interest and are portable, meaning the account stays with the individual even if they change jobs or health plans.

For example, if an individual contributes $3,000 to their HSA in a tax year, that amount can be deducted from their Taxable Income, potentially saving them Money on taxes. If they then use $1,000 of that Money to pay for a doctor’s visit, the withdrawal is tax-free.

Another case involves an individual who saves $5,000 in their HSA over several years. They may use these funds for various medical expenses like prescriptions, dental work, or even long-term care, all without incurring taxes on those withdrawals, as long as the expenses are qualified.