Health savings accounts are tax-advantaged savings plans that allow people to make tax-deductible contributions towards their health-care costs. Withdrawals, including investment earnings, are tax-free, provided the money is used to pay qualified medical expenses. Your employer may provide an HSA for you. If not, you can set an HSA up on your own.
You must enroll in a high-deductible health plan to open an HSA. You can’t be enrolled in Medicare and you may not be claimed by anyone as a dependent. If your employer provides the HSA, all you need to do to make contributions is to arrange with the payroll department for pre-tax deductions from your paycheck. To set up your own HSA, choose a provider approved by the IRS. Typically, banks and credit unions offer HSAs. You’ll need to complete an application and there may be a set-up fee. With some plans, initial deposits are around $100.
HSAs allow you to invest the money in securities like stocks, bonds and mutual funds, although you may want some of the money in a bank account for quick access. If your employer chooses to add money to an HSA that you set up, follow the account provider’s instructions to arrange for employer contributions.