The unique advantage of health savings accounts (HSA) is their triple tax advantage. Contributions are tax-deductible, earnings within the account are tax free, and qualified withdrawals for medical expenses are tax-free as well.
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An HSA, or Health Savings Account, is a type of tax-advantaged savings account that is designed to help individuals with high-deductible health insurance plans (HDHPs) save for medical expenses. It lets you contribute money on a pre-tax basis (with income you haven’t paid taxes on yet) to pay for medical expenses like dental work, vision care, prescriptions, or medical treatments and examinations. The funds can be used for deductibles, copayments, coinsurance, and other health care expenses, but not for insurance premiums.
An HSA lets you contribute money on a pre-tax basis to spend on medical expenses. It lets you save for your health care and reduce your taxable income at the same time.
Similar to a 401k, the HSA is owned by the employee of a company and can be funded by both the employee and employer.
The unique advantage of HSAs is their triple tax advantage. Contributions are tax deductible, earnings within the account are tax-free, and qualified withdrawals for medical expenses are tax-free as well.
• You can make contributions to your HSA, and your employer can also choose to make contributions for you. The funds come out of your paycheck and get deducted from your taxable income for the tax year.
• Like a retirement plan, the money in your account can be invested in traditional assets like stocks, bonds, mutual funds, and ETFs. There are no taxes on earnings and 100% of your profits can get reinvested.
• When you withdraw money from your HSA at any age, there are no taxes if you use it to pay for qualified medical expenses. Since the funds in your HSA can be invested with tax-free compounding, it helps you build more capital for larger medical expenses. If you have money leftover in your account, you can start taking withdrawals in retirement, starting at the age of 65.