What is an HSA or Health Savings Account?

saving money pig

An HSA or Health Savings Account allows account owners to pay for current health care expenses and save for those in the future.

  • Contributions to your HSA are tax-deductible. Why not make what you’re paying for your health care tax free? You have until the annual filing deadline to make contributions for the previous tax year. The best part is, you don’t have to itemize to claim the deduction as you write off the deposits on line 25 of your federal 1040
  • For tax year 2018, the contribution limits are set at $3,450 if you have individual coverage and $6,900 for families.
  • If you don’t use all the contributions you will receive interest and that interest earned is tax-free.
  • When you take a distribution from your HSA you don’t pay any taxes as long as you’re using the money for qualified medical expenses (See IRS publication 502 for more details). If you decide to use HSA funds for something other than healthcare, you might have to pay regular income tax on the money along with an additional 20% tax penalty (This will change after age 65. See IRS publication 969 for more details)
  • An HSA is The money in your HSA remains available for future qualified medical expenses even if you change health insurance plans, change employers or retire. Funds left in your account continue to grow tax free.
  • Most HSAs issue a debit card, so you can pay for your prescription medication and other expenses right away. If you wait for a bill to come in the mail, you can call the billing center and make a payment over the phone using your debit card.
  • You have to keep your receipts to prove that withdrawals were used for qualified health expenses.

What can I use it for?

Qualified expenses include most services provided by licensed health providers, as well as diagnostic devices and prescriptions. Allowable expenses are explained fully in IRS publication 502 

My favorite ones include:

  • Acupuncture
  • Chiropractic
  • Glasses & Contacts
  • Dental Treatments
  • Prescribed Medication Costs
  • Lab fees
  • Deductible and co-pays left over by your health insurance.

HSAs have no limit on carry-overs or when the funds may be used. Even if the account is opened through an employer-sponsored program, all money in an HSA belongs to the account owner. Accounts are held with a trustee or custodian, which may be a bank, credit union, insurance company or brokerage firm.

How do I qualify?

Qualifying for an HSA

To be an eligible individual and qualify for an HSA, you must meet the following requirements.

  • You are covered under a high deductible health plan (HDHP), described later, on the first day of the month.
  • You have no other health coverage except what is permitted under other health coverage.
  • You aren’t enrolled in Medicare.
  • You can’t be claimed as a dependent on someone else’s 2018 tax return.


Where to Go To Set Up a Health Savings Account?


Starting a Health Savings Account is not difficult. You can set up your account with:


  • Banks
  • Brokers and financial advisors
  • Credit Unions
  • Insurance Companies


Banks, Credit Unions, and Insurance Companies will only have their own specified plans to offer you. Brokers will have several options. It might be a good idea to ask your bank about their plans, and then speak to a broker who can review some options. Using a financial advisor may give you more advantages. In the end doing a little bit of research may help you earn more money in interest, spend less in fees and give you more control of your account.