Health Savings Account (HSA)

What is a Health Savings Account?

A Health Savings Account (HSA) is a tax-advantaged personal savings account that gives individuals an opportunity to set aside pre-tax income to use specifically for health expenses. Unlike medical flex plans, money in an HSA can earn interest, is tax deferred, and any money not used by the end of the year rolls over to the next year.

HSAs are designed for individuals who have high deductible health plans and account owners can use the money for a variety of health-related expenses including eyeglasses or contact lenses, non-prescription medications, therapy, medical equipment, diagnostic testing, etc.

Contribution Calculator

Savings Calculator

Goal Calculator

Benefits of Health Savings Accounts

HSAs can help curb medical costs, reduce taxable income, and even plan for retirement income.

Triple Tax Advantage

Tax-free contributions
In most states, contributions are not subject to state income taxes.

Tax-free gains
Any interest or other earnings on the money in the account is tax free.

Tax-free withdrawals Withdrawals from your HSA are not subject to federal (or in most cases, state) taxes if you use them for qualified medical expenses.

It Goes Where You Do
The money in your HSA remains available even if you change health insurance plans, go to work for a different employer, or retire. Your funds never expire, so you can use them to pay for qualified expenses throughout your life.
Any unused balance carries over from one year to the next.
You’re In Control
You decide how much you’d like to save in your account (up to the IRS contribution limit) and which qualified expenses to pay using your HSA.

Smart Money Habits Course

Health Savings Accounts

Health Savings Accounts (or HSAs) have grown in popularity as way for consumers to save for healthcare costs. However, many people are still unfamiliar with how to use HSAs and the benefits associated with them.

Take this lesson to learn more about HSAs.

Health Savings Account FAQ’s

How does an HSA plan work?

An HSA works in conjunction with high deductible health insurance.

Your HSA dollars can be used to help pay the health insurance deductible and any qualified medical expenses, including those not covered by the health insurance, like dental and vision care.

Any funds you withdraw for non-qualified medical expenses will be taxed at your income tax rate, plus 10% tax penalty.

Once you meet your calendar-year deductible, the health insurance pays remaining covered expenses in accordance with the terms and conditions of your particular plan. Some plans pay 100% of covered expenses after the calendar-year deductible is met.

Who is eligible for an HSA?

To be an eligible individual and qualify for an HSA contribution, you must meet the following requirements.

● You are covered under a high deductible health plan (HDHP), described later, on the first day of the month.
● You have no other health coverage except what is permitted under Other health coverage, later.
● You aren’t enrolled in Medicare.
● You can’t be claimed as a dependent on someone else’s tax return.

What is "other" health coverage?

You can have additional insurance that provides benefits only for the following items.

● Liabilities incurred under workers’ compensation laws, tort liabilities, or liabilities related to ownership or use of property.
● A specific disease or illness.
● A fixed amount per day (or other period) of hospitalization.

You can also have coverage (whether provided through insurance or otherwise) for the following items.

● Accidents.
● Disability.
● Dental care.
● Vision care.
● Long-term care.
● Telehealth and other remote care (for plan years beginning before 2022).

Are there HSA management fees?

Yes, if the minimum daily balance is under $2,000 there is a $4.00 charge each month.

What is a qualified medical expense?

A qualified medical expense is one for medical care as defined by Internal Revenue Code Section 213(d). The expenses must be primarily to alleviate or prevent a physical or mental defect or illness, including dental and vision. Most expenses for medical care will fall under IRC Section 213(d).

However, some expenses do not qualify. A few examples are:

● Surgery for purely cosmetic reasons
● Health club dues
● Illegal operations or treatment
● Maternity clothes
● Toothpaste, toiletries, and cosmetics

HSA money cannot generally be used to pay your insurance premiums. See exceptions under “Can my HSA be used to pay premiums?”.

*See IRS Publications 502 (“Medical and Dental Expenses”) and 969 (“Health Savings Accounts and Other Tax-Favored Health Plans”) for more information.

Are there adjustments for inflation?

Yes, the tax law requires an annual Cost of Living Adjustment (COLA) based on changes in the Consumer Price Index. This calculation, rounded to the nearest $50 increment, affects deductible limits, maximum out-of-pocket amounts, and the maximum annual HSA contribution limits.Health insurance deductibles may change by the COLA each year.

Can my HSA be used to pay premiums?

No, this would be a non-medical withdrawal, subject to taxes and penalty. However, there are some situations in which no penalty or taxes will apply, including when money is withdrawn to pay for:

● Qualified long-term care insurance; or
● Health insurance while you are receiving federal or state unemployment compensation; or
● Continuation of coverage plans, like COBRA, required under any federal law; or
● Medicare premiums.

When can I start to use the funds in my HSA?

Once your account is open, a deposit has been made to your account and funds are available, you can start using your HSA. You are 100% vested as soon as the funds are deposited and you have total control over the funds.

What about “catch up” contributions for those 55 and older?

Individuals aged 55 and over may contribute an additional $1,000 above the maximum for each tax year.

Can I have an HSA and an IRA?

Yes, having an HSA in no way restricts your ability to have an IRA.

What are the tax deductible contribution limits?

Federal law states that annual contribution limits are $3,650 for singles/$7,300 for families for 2022. Individuals aged 55+ may contribute an additional $1,000 for each tax year.

Do HSA plans work with physician and provider networks?

Yes. These networks are very often part of the health insurance plan, and they provide discounts on health care. The discounts apply to all care — even prior to meeting the health insurance deductible. So, your HSA plan savings go further.

Can my HSA be used for dependents not covered by the health insurance?

Generally, yes. Qualified medical expenses include unreimbursed medical expenses of the accountholder, his or her spouse, or dependents.

What about non-medical withdrawals?

You can withdraw money from your HSA at any time for any purpose. If the money is used for an ineligible expense (whether medical or non-medical), the expenditure will be taxed and, for individuals who are not disabled or over age 65, subject to a 20% tax penalty.

If you are 65 or older at the time of withdrawal, then you are free to withdraw money from your HSA for any purpose. You will have to pay the applicable income tax but there will be no additional tax penalty.

What are the tax benefits?

There are three major tax advantages to your HSA:

● Cash contributions to an HSA are 100% deductible from your federal gross income (within legal limits).
● Interest on savings accumulates tax deferred.
● Withdrawals from an HSA for “qualified medical expenses” are free from federal income tax.

What expenses are qualified for reimbursement from my HSA?

You are eligible to receive tax-free reimbursement for qualified health expenses not covered by your insurance as defined by Section 213(d) of the Tax Code. A list of these expenses is available on the IRS website, www.irs.gov. HSA distributions used for any purpose other than the qualified medical expenses listed will be taxable, and the appropriate tax rules will apply.

Is it true that individuals 65 or older can take out funds from their HSA plan for any reason without a penalty?

If an individual is age 65 or older, regardless of whether the individual has been enrolled in Medicare, there is no penalty to withdraw funds from the HSA. As always, normal income taxes will apply if the distribution is not used for unreimbursed medical expenses (expenses not covered by the medical plan).

You may also be interested in:

Personal Savings Accounts

Personal Loans & Lines of Credit

Home Equity Lines of Credit

You are now leaving M&F Bank

M&F Bank provides links to web sites of other organizations in order to provide visitors with certain information. A link does not constitute an endorsement of content, viewpoint, policies, products or services of that web site. Once you link to another web site not maintained by M&F Bank, you are subject to the terms and conditions of that web site, including but not limited to its privacy policy.

You will be redirected to

Click the link above to continue or CANCEL