Understanding Health Savings Accounts (HSAs): Benefits, Rules & Limits

A Health Savings Account (HSA) is a tax-advantaged account designed for individuals with high-deductible health plans (HDHPs) to save for qualified medical expenses. Contributions, made by either individuals or employers, are tax-free and can roll over yearly, growing tax-free over time. The funds can be invested, making HSAs a versatile tool not only for current medical expenses but also for retirement savings, as withdrawals are tax-free if used for qualifying medical expenses listed by IRS guidelines, such as deductibles, dental, and vision care. Self-employed, unemployed, and employed individuals can all contribute, and contributions for 2024 are capped at $4,150 for individuals and $8,300 for families, with a $1,000 catch-up option for those aged 55 and older. Once individuals turn 65, non-qualified withdrawals avoid a 20% penalty but are taxed as income. HSAs differ from Flexible Spending Accounts (FSAs) in that they allow unspent funds to roll over each year and are portable if job changes occur. However, they require plan participants to afford potentially high deductibles associated with HDHPs.