Understanding How an HSA Works - USA Today

Health Savings Accounts (HSAs) are a valuable tool that can help individuals save and pay for medical expenses. But how exactly do they work? Let's break it down in simple terms.

An HSA is a tax-advantaged savings account that allows you to set aside money for qualified medical expenses. Here's how it typically works:

1. You must be enrolled in a high-deductible health insurance plan (HDHP) to qualify for an HSA.

2. You or your employer can contribute money to your HSA account up to the annual contribution limit set by the IRS.

3. The contributions you make to your HSA are tax-deductible, meaning you can lower your taxable income.

4. You can use the funds in your HSA to pay for qualified medical expenses, such as doctor visits, prescriptions, and certain medical supplies.

5. Any unused funds in your HSA roll over year after year, allowing you to build up savings for future healthcare needs.

6. Once you reach retirement age, you can use the funds in your HSA for non-medical expenses without facing a penalty (though you will pay income tax on the withdrawals).

HSAs offer flexibility, tax savings, and the opportunity to save for future healthcare costs. By understanding how an HSA works, you can make informed decisions about your healthcare and finances.

Understanding Health Savings Accounts (HSAs) goes beyond their basic functions—these accounts are designed to empower you to take control of your healthcare expenses effectively.