A Health Savings Account, or HSA, is a financial account established by an individual or family to pay for HSA-qualified medical expenses. Individuals with an HSA receive a 100% income tax deduction on contributions they make annually.
HSAs combine the benefits of Roth 401(k)s and IRAs, but for medical expenses, featuring:
- Tax-deductible contributions
- Tax-free accumulation of interest and dividends tax-free, and
- Tax-free distributions for qualified medical expenses.
HSA Qualified Expenses
The list of eligible Health Savings Account expenses can be found in IRS Publication 502, Medical and Dental Expenses. Examples of included expenses:
- Birth Control
- Eye Exams
- Hearing Aids
- Home Care
- Hospital Services
- Lab Fees
- Nursing Services
HSAs with Compatible HRAs
Zane Benefits is the nation's leading HRA administrator, so what does that have to do with HSAs? Well, a very popular option is to combine an employer-sponsored HRA with an individual HSA, which is allowed under certain circumstances:
- The employee must purchase an HSA-qualified insurance plan, and
- Make their HRA HSA-qualified by putting a deductible on the HRA for all medical expenses except for the allowed categories.