Healthcare savings accounts (HSAs) are one of the most useful but misunderstood, and rarely used, healthcare financing options.
An HSA is a tax-advantaged savings program covering out-of-pocket healthcare expenses. It offers free contributions and tax-free withdrawals.
Unlike the flexible spending account, there is no “use it or lose it” provision -- you can roll it over year after year.
In fact, an HSA offers especially good tax benefits because you can use the HSA as an investment account for healthcare costs.
However, if the IRS is going to allow this kind of benefit, you know it comes with strings attached. You have to coordinate your HSA with a high deductible health plan.
You cannot use an HSA with a regular PPO or HMO. You can only include yourself, your spouse and dependents you claim on your taxes.
There are limitations on the amount you can put in the account: For 2022, it’s $3,650 for an individual, and for a family the maximum contribution is $7,300. There is a catch-up provision of another $1,000 if you are over 55.
There are also minimums on the deductibles in your high deductible plan. It’s complicated with lots of rules: Be very careful to know what you are getting into beforehand.
More: Money Monday section