Health Savings Account

A health savings account (HSA) is an employer-sponsored, tax-friendly savings account that can be used for qualified healthcare expenses.

HSAs have significant tax benefits: Employees can contribute tax-free dollars, investments grow tax-free, and withdrawals are tax-free if used for qualified medical, dental, and vision expenses. Unlike a flexible savings account (FSA), funds don’t have to be used by the end of the year, and an employee keeps their HSA if they leave the company that sponsors the HSA.

To qualify for an HSA, employees must be in a high-deductible healthcare plan. Individuals who are younger than 65 have a 20% tax penalty for withdrawing funds early and must pay additional taxes for nonqualified expenses. Those older than 65 can withdraw funds without the 20% penalty but still pay income tax if the money is not used for healthcare expenses.