Many workers are able to reduce their health insurance premiums by signing up for a high-deductible health insurance plan and pairing it with a health savings account. HSAs provide a triple tax benefit: You don’t have to pay income tax on your contributions, the money in the account grows without being taxed and the funds can be withdrawn tax-free when used to pay for medical expenses.
Unlike a flexible spending account, which often requires you to use your funds within 15 months or so, the money in your HSA can be rolled over from year to year and be used for future medical care needs, even during retirement. Here’s how to decide if a health savings account is right for you.
What is an HSA? HSAs allow you to regularly designate funds for upcoming medical needs. “An HSA is a personal savings account for health expenses,” says Shobin Uralil, co-founder and chief operating officer of HSA provider Lively. To be eligible for an HSA, you must be enrolled in a high-deductible health care plan. In 2021, an HSA-eligible HDHP is defined as a plan with a deductible that is at least $1,400 for an individual or $2,800 for a family. Once you have an HSA, your employer can contribute to the account as well.