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What Is an HSA Used For?

A health savings account (HSA) is a type of plan that you can set up to help pay for medical expenses. This type of savings account is only available to certain individuals who have the right type of health insurance plan. Understanding how this type of account works can help save you money on qualified medical expenses.

  1. How an HSA Works

    • With a health savings account, you contribute money to the account on a pre-tax basis. The money then earns a return on it while it is in the account. You do not have to pay taxes on these returns. Once the money is in the account, you can use it on qualified medical expenses. This allows you to save money on taxes and use money that you would not normally have access to.

    Eligibility

    • Before you can use a health savings account, you have to make sure that you are eligible to do so. You must have a high-deductible health insurance plan to use a health savings account. A high-deductible health plan for an individual has a deductible of at least $1,200. For a family plan, the deductible must be at least $2,300 to use the account.

    Qualified Expenses

    • Once the money is in the account, you can use it to pay for qualified medical expenses. If you do not use the money for qualified medical expenses, you will have to pay a 10 percent penalty on the amount that you withdraw as well as pay taxes on that amount. You can use the money to pay for the deductible as well as for items that are not covered by your insurance, such as dental or vision treatments. You can also use the money for co-pays and over-the-counter prescriptions with a doctor's prescription. However, you cannot use the funds for cosmetic surgery, health club dues or maternity clothes.

    Over 65

    • Once you put the money in your health savings account, you can use it or let it accumulate. When you reach the age of 65, you will no longer have to worry about the 10 percent penalty for non-medical distributions. You will still have to pay taxes on the money that you take out since it was never taxed. This allows you to use the account as another type of retirement plan.

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