What is a Health Care Savings Account?

An HSA is a tax-advantaged way of saving for medical expenses not covered by your health insurance, such as deductibles, copays and coinsurance payments. HSAs can be found with banks, credit unions and financial institutions and funds can be used both now and later on for qualifying medical expenses such as deductibles, copays and coinsurance payments. You also have options available to you regarding investing your HSA funds – though make sure that you fully understand any risks and rewards before making decisions about where or how best to manage them!

Maxine works full time to support her family of three children, her husband George and herself. To keep everyone healthy and happy she enrolls in a health care spending account (FSA) through her employer. Maxine makes monthly pretax contributions into her FSA, then can use any leftover balance at the start of every year on items like over-the-counter pain meds, allergy medicines or heating pads.

While many with high deductible health plans (HDHPs) may be interested in opening up an HSA, there are multiple kinds of health care accounts besides HSAs available to them, including Flexible Spending Accounts (FSAs), Health Reimbursement Accounts (HRAs), and Medicare Advantage Prescription Drug Plans. Each account comes with its own set of advantages and disadvantages; but what exactly is an HSA and how can it help me save on medical costs?

FSAs and HRAs allow employees and retirees to set aside pretax dollars each year in an FSA/HRA account to cover qualified expenses such as healthcare, hospital stays, prescription drug costs, dental and vision expenses – such as those listed above. Receipts from these expenses may even be submitted later for reimbursement if any balance remains.

HSAs are unique accounts in that they provide triple tax advantages: contributions can be deducted, growth is tax-free and withdrawals tax-free as long as used to pay qualified medical expenses. With proper use, an HSA can serve both to cover these expenses while building retirement savings.

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