What is an HSA?

What is an HSA?
HSA stands for Health Savings account. Just like an IRA, a Health Savings Account belongs to the employee. The money is kept in a bank account which goes with the employee if he or she leaves the company. Any unused money automatically rolls over from year to year.

The total amount that the employee, employer or both  together can put into an HSA each year is limited by law. It can't be more than a cap set each year by the IRS. Employees over age 55, however, may put in additional "catch-up" money.

HSA money can be used to pay for qualified expenses until the health plan's deductible is met and the plan starts paying for health care. Or, employees can save the money in their HSAs for future expenses.

Employees with HSAs can also withdraw money for qualified expenses even when they're no longer covered by a high-deductible plan.

Triple Tax Advantages
Employees do not pay taxes on the money they, or anyone else, contributes to their HSAs. Unlike a regular IRA, employees won't need to pay taxes on the money when they withdraw it, either, as long as they are using the money to pay for qualified health expenses. Thirdly, any interest that the HSA earns is not taxed.


Health Savings Accounts and Flexible Spending Accounts
Flexible spending accounts (FSAs) also allow employees to set aside pre-tax dollars to pay for qualified health care expenses. However, HSAs are different from FSAs in several ways:

• The money set aside in an FSA must be spent during the same tax year or the employee will lose it. HSA money, however, can stay in the account forever, earning interest, until it's needed.
• Qualified expenses are different for a flex account than for a health savings account. For example, money from an FSA can be used to pay for child care as well as health care.
• When an employee has an HSA, there are limits to what kind of FSA they may have.
  

Read more about Flexible Spending Accounts (FSAs).