How Does a Health Savings Account Work?

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A health savings account is funded by pre-tax money, which can be withdrawn to pay health care bills. Learn the benefits of a health savings account with information from a portfolio manager in this free video on finance.

Part of the Video Series: Credits, Stocks & Pension
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Video Transcript

Does your employer give you the right to set aside pre-taxed dollars to spend on health care? Hi this is Roger Groh with Groh Asset Management and today we're here to talk about health care savings accounts. What it is is your own money that has been taken away before you've paid tax on it and stuck into an account that you can then withdraw to pay your health care bills. The advantage? It's pretax money. There are limitations in each state and country as to how much can be withdrawn and set aside in there. Also there are strict reporting requirements to the states and IRS in the US about how much money you've taken out and where it sits. One note, you want to be very sure that if you don't spend all of the money in your health care savings account, that it comes back to you at the end of the year or whatever time period you've setup as part of your ordinary income. That way it's the best of both worlds. While you're paying your health care bills, you're paying them pretax but nonetheless you don't tie your money up forever and forever and if you don't spend it, you get it back. Yeah you pay tax on it, but at least you get it back. Are they a good thing? They're terrific. Ask your health plan administrator or pension administrator for more information. I'm Roger Groh at Groh Asset, thank you very much for spending time with me.

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