The Benefits of a Health Savings Account (HSA)

by Investing School on May 20, 2011

There are many types of benefits offered to employees of large companies, but one of the best among them is the Health Savings Account or HSA. This is an account into which an employee can deposit funds which will then be used to pay a number of different medical expenses. Among those which can be covered by HSA funds are insurance co-pays, over the counter medications and deductible payments.

An HSA is a tax advantaged fund, so funds contributed are not subject to taxation at the time of deposit. If the funds are not fully spent by the end of the year, they can roll over to the following year. Withdrawals made for unapproved expenses or those which are not medical in nature are subject to the same sorts of penalties one incurs when funds are removed from IRAs prematurely.

Deposits into an HSA can be made by the individual, the employer or anyone else. Specific limits are in place as to the amount which can be deposited each year per individual or family, with a catch-up clause for those over 55. HSA funds can be invested, must like IRA funds with the earnings sheltered from taxation until withdrawal and possibly even then. The funds can also be rolled over into other HSAs if desired.

Funds can be accessed at any time. Checks or debit cards are common methods used for payment of medical expenses, so that the funds are applied directly from the account. Documentation of medical expenses must be kept for tax purposes and the funds can pass to a beneficiary if the original holder passes away.

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