HSA Advantages
HSAs were created in response to the rising cost of health care. The intent of Congress in passing this legislation was to provide a financial incentive for employers and the self-employed to purchase health plans. It also encourages consumers to be more responsible with their healthcare spending.
HSAs allow employees to retain contributions made on their behalf in the event they change employment. And, unlike cafeteria plans, which also provide benefits to pay for non-covered medical expenses, HSA assets cannot be lost if not used within a one year period.
1. Contributions are 100% tax deductible.
2. Interest or other earnings on the assets are tax free, and your money grows tax deferred.
3. Money saved can be used for qualified medical expenses tax free for life (see IRS Publication 502).
4. HSA funds can also be used to pay COBRA or other medical insurance premiums during periods of unemployment or temporary layoff.
5. Contributions remain in your HSA until you use them. At age 65, unused HSA money can be withdrawn for non-medical expenses without penalty. (Similar to an IRA, ordinary income tax will be charged on the money withdrawn for non-medical reasons.)
Who may receive HSA benefits?
Anyone who has purchased an hsa-compatible high deductible health insurance plan may apply for an HSA. Contributions may be made by the employer on behalf of its employees, or by the employees themselves. Employer contributions are tax deductible and excluded from an employee’s income. Employee contributions are also tax deductible.