HSA Rules

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A health savings account (HSA) is an alternative to traditional health insurance. You can open an HSA if you are under age 65, covered by a high deductible health plan (HDHP), and do not have any other medical insurance.

Function

  • You can use money contributed to an HSA to pay for qualified medical expenses not covered by insurance, often including dental, vision and some medicines, both prescription and over-the-counter.

Features

  • Funds in an HSA are invested according to your direction, and earnings on investments grow tax-deferred. Withdrawals are tax-free, as long as the money is used for qualified medical expenses.

Benefits

  • You can use your HSA to pay for medical expenses for any member of your family. Unused funds roll over from year to year—you won't lose any unspent money.

Considerations

  • HSA contributions are tax-deductible, regardless of whether you itemize deductions. Your employer may also contribute to your HSA, which will count toward your maximum annual contribution.

Warning

  • You can withdraw funds for any reason, but withdrawals not used for qualified medical expenses are subject to taxes, as well as a 10 percent penalty if you are under age 65.

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