A Health Savings Account or HSA is a type of account that allows an individual to contribute pre-tax money to pay for qualified medical expenses. While the funds in an HSA cannot be used to pay for insurance premiums, the money may be used to pay for eligible medical, dental, vision, and prescription medications. Simply put, it’s like setting a savings account that you can put money into but the catch is that you can only spend it on medical expenses.
How can you qualify for a Health Savings Account (HSA)?
Just because you want to have an HSA does not mean that you can just go ahead and set one up. There are specific requirements needed to be eligible to open an HSA. An individual must meet the following criteria:
You have a high deductible health plan (HDHP)
You are not enrolled in Medicare
You have no other health coverage
You are not claimed as a dependent on another individual’s tax return
My spouse has an HSA. Will I be covered under the same HSA?
No, you will not be covered by your spouse’s HSA. Having a joint HSA is not allowed. If you would like to have an HSA and you are an eligible individual, you may open a separate HSA.
What are the benefits of having aHealth Savings Account (HSA)?
The main benefit of having an HSA is being able to use the funds to reduce out-of-pocket costs for medical bills. Many medical expenses are eligible as well. Because of the Coronavirus Aid, Relief, and Economic Security (CARES) Act which was passed in 2020, even over-the-counter (OTC) medications can be eligible expenses.
Also, other people are allowed to contribute to an HSA fund. Aside from the individual, employers and family members can also contribute money to the fund. Even if the Internal Revenue Service (IRS) has set limits on the contributions, it is still a big help to have other people contribute money.
Another benefit of an HSA is that you can claim tax deductions for contributions made to an HSA. Any interest made from the funds will be tax-free. Not only that, if you use your HSA funds for qualified medical expenses, the distributions will also be tax-free.
Finally, there is no expiry on using HSA funds. The money will stay in your account until such time that you use them. An HSA is also “portable” which means that you will still have your HSA even if you change employers.
Is aHealth Savings Account (HSA) the same as a Flexible Savings Account (FSA)?
No, HSAs and FSAs are not the same. While both are related to health-related expenses, they
differ in the following ways:
HSA (Health Savings Account)
Can only be used by an employee if they also have a high-deductible health plan (HDHP);
Self-employed individuals can set up an HSA;
Is funded by the employee, but the employer and other family members can also make contributions;
If you do not use the funds in your HSA, the money will stay in your account.
If an employee leaves their employer, the employee gets to keep their HSA.
FSA (Flexible Savings Account)
You can only sign up for an FSA if it is offered by your employer;
Self-employed individuals cannot have FSAs;
If you do not use the funds in your FSA, you may lose the money.
If an employee leaves their employer, the employee will lose the FSA.
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