What is a Health Savings Account?
A Health Savings Account (HSA) lets you put aside money on a pre-tax basis to pay for qualified medical expenses. Think of it as a savings account that you, your employer, and even a relative can contribute to for your medical expenses. Examples of these expenses include deductibles, copayments, and coinsurance. Funds that are in the HSA account can also be invested into the stock market to grow the pool of money.
HSAs are a great tool to reduce your taxable income. Each year, the IRS sets limits on how much you can contribute to the account. In the tax year 2020, for example, the limit is $3,550 for individuals and $7,100 for families, plus an additional $1,000 "catch-up" contribution for anyone age 55 or older by the end of the tax year.
One drawback about HSAs is that they are only available if you have a high-deductible insurance plan. This means that you typically will have to pay more money upfront before your insurance steps in to provide coverage. An HSA may be available through your insurance, employer, or bank.