The HSA Plan Explained: Tax Loopholes Of The Rich

Health Savings Accounts: An Overview

A Health Savings Account (HSA) is like a personal savings account, but it can only be used for qualified healthcare expenses. To be eligible, you must be enrolled in a High-Deductible Health Plan (HDHP). Health Savings Accounts also have some important tax advantages.

KEY TAKEAWAYS

A Health Savings Account (HSA) can help patients with high-deductible health insurance plans cover their out-of-pocket costs.
Contributions to HSAs generally aren't subject to federal income tax, and the earnings in the account grow tax-free.
Unspent money in an HSA rolls over at the end of the year so it's available for future health expenses.
High-deductible health plans, which are a requirement for HSAs, aren't always the best option for patients, especially those who expect to have significant healthcare expenses in the future. Those patients may be better off with an insurance plan that charges higher premiums upfront but covers a greater percentage of their costs.

Pre-Tax Contributions. Contributions are typically made with pre-tax dollars, through payroll deductions at your employer. As a result, they are not included in your gross income and are not subject to federal income taxes. In most states, contributions are not subject to state income taxes.

Tax-Deductible After-Tax Contributions. If you make contributions with after-tax dollars, you can deduct them from your gross income on your tax return, reducing your tax bill for the year.

Tax-Free Earnings. Any interest or other earnings on the money in the account is tax free.

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