Health Savings Accounts

Learn everything you need to know about Health Savings Accounts and their benefits.

HSA Basics


A Health Savings Accounts (HSA) have two components: a tax-advantaged savings account coupled with a lower-premium, high-deductible health insurance plan. HSA-qualified high-deductible health plans often cost significantly less in premiums than more traditional health insurance while still providing quality coverage, including preventive care.

Money you save on your health insurance premiums can be deposited into an HSA and qualify as a tax deduction on line 25 on your Form 1040. Your HSA dollars grow tax deferred and can be withdrawn tax free as long as you use them for qualified medical expenses, which includes your health plan deductible as well as vision and dental care not covered by health insurance plans.

While the new health care reform law changed a few aspects of HSAs, their triple-tax advantages remain – money deposited into an HSA is still tax deductible, interest on these savings still grows tax deferred and funds withdrawn for qualified medical expenses are still tax-free. Any money left in the account at the end of the year rolls over to the next year. You own your health savings account and it goes wherever you go.

What’s more, if you are 55 or older, but not yet entitled to Medicare, an extra tax advantage allows you to make an additional contribution of $1,000 annually. Also, if you are 65 or older, there is no penalty if you use HSA funds for non-medical expenses, as long as you pay ordinary income taxes. Of course, you can still use your HSA dollars tax-free for qualified medical expenses even in retirement.

Since the money in the HSA belongs to you – not your insurance company or bank – you decide when to spend and when to save. When you do spend from your HSA for qualified medical expenses, your withdrawals are tax free.”

HSA Guidelines


Eligibility for HSAs Generally, any individual who is covered by a qualified high deductible health plan and who is not entitled to or covered by Medicare or other health insurance — including an unlimited health reimbursement account (HRA) or health flexible spending account (FSA) — can qualify. Individuals cannot be claimed as a dependent on someone else’s tax return. Eligible Expenses for HSAs HSAs can be used to pay for many types of qualified medical expenses, even some that are often excluded by health insurance plans, only to the extent the expenses are not covered by insurance or otherwise. These include:

  • Health insurance plan deductibles, copayments and coinsurance paid for qualified medical expenses
  • Prescription drugs
  • Dental services, including braces, bridges and crowns
  • Vision care, including glasses and Lasik eye surgery
  • Psychiatric and certain psychological treatments
  • Qualified long-term care services and insurance premiums (subject to certain limits based on age and are adjusted annually)
  • Medically related transportation and lodging (subject to certain limitations)
  • Premiums paid for health care continuation coverage, e.g. COBRA premiums and certain health insurance premiums (check with a tax advisor or IRS for specifics) Go to for a complete list of what medical expenses are and are not approved by the IRS.

HSA Contributions

  • Annual contribution limitations: up to $3,500 for individuals and $7,000 for family coverage (These amounts may increase based upon IRS guidelines and are detailed below.)
2020 IRS Limits Single Plan Family Plan
Minimum Deductible $1,400 $2,800
Maximum Out-of-Pocket $6,900 $13,800
Maximum Contribution Limit $3,550 $7,100
Catch-up Contribution (55+) $1,000 $1,000

Contribution deadline is due date of individual’s federal income tax return

Additional Information


HSA Distributions

  • Distributions are tax-free for qualified medical expenses
  • Distributions from an HSA that are not used for qualifiedmedical expenses are includable in the beneficiary’s taxable income and also may be subject to an additional penalty
  • Expenses must be incurred after the HSA has been set up
  • Removal of funds from account does not have to occur at same time as the actual medical expense
  • Distributions may occur even if the individual is no longer eligible to contribute to the HSA
  • HSA funds may accumulate for use after retirement
  • The HSA holder is entirely responsible for determining the eligibility of the expense as well as for maintaining records and reporting

HSA Bank A Health Savings Account (HSA) is a savings account that is set up with a bank and is a tax-favored account used in conjunction with an HSA-compatible health plan. The HSA concept allows you to contribute funds to the Health Savings Account on a pre-tax or tax-deductible basis, which you may use to pay for eligible medical expenses. All banks have HSA accounts, but I recommend HSA bank for their expertise.  To learn more about HSA bank and their many benefits, click here. To apply, click here for the HSA Bank Application.