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What are the benefits of an HSA?

  1. Tax-free1 money for qualified medical costs. Because HSA contributions2 are tax-deductible, and they earn tax-free interest, with tax-free withdrawals3, tax-free money from the HSA can be used to pay for health expenses. This means that the account holder saves 35%4 off the retail cost of their medical services. 
  2. Flexibility. The account holder owns the HSA. If they change employers, they can roll the account over5 to a new provider, similar to a 401(k). 
  3. Long-term savings. With an interest-bearing HSA,6 and investment opportunities, account holders that plan for the long-term can mitigate the cost of health care expenses during retirement.7 
  4. A health safety net. An HSA helps individuals save for the unknown. HSA funds can be used for unexpected health expenses and healthcare costs like health insurance if the account holder is between jobs. It also covers Medicare-related expenses, or any other qualified medical expense, even after a change of plans or providers. 
  5. Versatility in retirement. Once the account holder turns 65 years old, HSA funds can be used for non-health-related expenses without any penalties, similar to a 401(k) or IRA.


Discover more benefits of a health savings account.

 

 

1.  “Section 223 - Health Savings Accounts.” Internal Revenue Service. https://www.irs.gov/pub/irs-drop/n-13-57.pdf.

2. “Internal Revenue Bulletin: 2004-2: III. Contributions to HSAs. Q-11. Who May Contribute to an HSA?” Internal Revenue Service, January 12, 2004. https://www.irs.gov/irb/2004-02_IRB.

3. “26 U.S. Code § 223 - Health Savings Accounts: 223(f)(1) Amounts Used for Qualified Medical Expenses.” Legal Information Institute. Cornell Law School. https://www.law.cornell.edu/uscode/text/26/223.

4. Assumes 35% combined federal and state income tax savings.

5. “26 U.S. Code § 223 - Health Savings Accounts: 223(d)(1)(E) The interest of an individual in the balance in his account is nonforfeitable.” Legal Information Institute. Cornell Law School. https://www.law.cornell.edu/uscode/text/26/223. 

6. “About Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.” Internal Revenue Service, May 1, 2020. https://www.irs.gov/forms-pubs/about-publication-969.

7. “Internal Revenue Bulletin: 2004-2: III. Contributions to HSAs. Q-20. What is the Tax Treatment of an HSA?” Internal Revenue Service, January 12, 2004. https://www.irs.gov/irb/2004-02_IRB.

 

 

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