What is a Health Savings Account?

An HSA is a tax-advantaged personal savings or investment account intended for payment of medical expenses that may be established in combination with an HSA- eligible high deductible health plan.

An HSA has two main components:

  1. A high deductible health insurance plan, specifically designated as an HSA-compatible plan, also called HDHP. Note: not all high deductible plans are HSA-compatible.
  2. A separate bank account where funds are deposited and withdrawn to pay for qualified medical expenses. Funds can be deposited by an employer, and employee/account holder, and/or family members. The funds deposited by an employer are fully vested to the employee when they are received. There is no “use it or lose it” provision and the account is fully portable.

How much can I contribute?

Maximum funding limits for HSA plans are:

  • 2018: $3,450 (individual) and $6,850 (family)
  • Additional $1,000 “Catch-up” contributions are allowed for individuals 55 and older
    • If both spouses are eligible, a separate account must be set up for the second spouse to make the additional catch-up contribution.

How can I spend the money?

HSA funds must be used towards qualified medical expenses, found in IRS Publication 502. Funds used for non-medical items are subject to income tax and up to a 20% penalty.