Health Savings Accounts (HSAs) 101

We answer the most frequently asked questions about Health Savings Accounts (HSAs).

Dec 04, 2017

Health Savings Accounts (HSAs) have been a popular topic of conversation in recent years. Many see them as a way to offset the rising cost of healthcare, while others sing the praises of their “Triple-Tax Advantage.”

To help clear up any confusion, we’d like to answer the most FAQs about HSAs.

What is an HSA?

An HSA is a tax-advantaged savings account used to pay for eligible healthcare expenses, and available to plan participants enrolled in a qualified high-deductible health plan (HDHP).

HSAs allow you to defer a percentage of your salary, tax-free, toward this account. up to the IRS defined contribution limits. Plan sponsors can also contribute to your HSA, much like a 401(k), but the combined contribution can’t exceed the limit set by the IRS.

How Do I Use It?

You can use these tax-free funds to pay for qualified medical expenses including:

  • Deductibles and coinsurance for medical and dental care
  • Prescriptions
  • Vision care, including glasses and LASIK eye surgery
  • Smoking cessation treatment and prescriptions
  • Chiropractic care
  • Long-term care insurance premiums
  • Cost of COBRA coverage
  • Post age-65 premiums for coverage other than Medigap or Medicare supplemental plans
  • HSA funds may be used to pay Medicare Parts A and B premiums and employer-sponsored retiree plans

As long as the funds are used for eligible expenses, these funds can be withdrawn tax-free at any time. You receive a debit card that allows you to make payments much as you would with a standard debit or credit card.

How Can I Save and Invest with an HSA?

An HSA also serves as a vehicle for saving and investment. All unused funds in your HSA roll over from year to year and tie to a participant-directed investment account which allows funds to grow as they accumulate.

What is the Triple Tax Advantage?

An HSA has a “triple tax advantage” because you can save on your taxes in the following three ways:

  1. Funds contributed by you and your plan sponsor are tax-free.
  2. Interest and investment earnings are tax-free.
  3. Funds withdrawn for eligible medical expenses are tax-free.

What If I Want to Spend the Money on Non-Medical Expenses?

If you’re younger than 65 and withdraw funds for ineligible expenses, the funds are subject to both income taxes and a 20 percent penalty. After age 65, funds are subject to income tax only.

How Can I Learn More About HSAs?

Enrolled in a qualified High Deductible Health Plan and want to open an HSA? Talk with your employer about your options.  If your plan offers an HSA at BPAS, Roadways HSA allows you to invest your HSA funds from the first dollar in. For more information about HSAs, including regulations and contribution limits, visit the IRS website.